Sbarro, Inc., and its domestic subsidiaries, today announced that it has reached agreement with all of its second-lien secured lenders and approximately 70 percent of its senior noteholders on the terms of a reorganization plan that will eliminate approximately $200 million of debt. This amount represents more than half of the Company’s total indebtedness- significantly improving the Company’s capital structure and operating flexibility.
To facilitate its restructuring, the Company has commenced a voluntary, pre-arranged filing under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. The Company will use Chapter 11 to reorganize its debts, and ensure its long-term financial health, while continuing to operate in the normal course of business without interruption during the restructuring process.
In conjunction with the filing, the Company is seeking Court approval to enter into a $35 million debtor-in-possession (DIP) financing agreement it has secured with certain of its existing first-lien lenders. The DIP financing together with the Company’s cash flow from operations will provide Sbarro with sufficient liquidity to meet its post-petition operating expenses and maintain normal operations. Sbarro’s first lien lenders are not parties to the restructuring agreement, and the Company is in ongoing discussions with these lenders regarding the terms of proposed exit financing.
Under the proposed restructuring, the Company expects to reduce its current debt obligations by approximately $200 million to approximately $175 million, by converting all of its existing second-lien debt and senior notes to equity. The Company is proposing that the remaining debt continue to be held by the existing first-lien lenders, with the maturity of that debt extended through the fifth anniversary of the Company’s emergence from Chapter 11. MidOcean Partners III, L.P. and Ares Corporate Opportunities Fund II, LP have agreed to backstop a $30 million rights offering, the proceeds of which will be used to repay the DIP and provide the reorganized business with additional equity capital and liquidity.
“We believe this plan represents the best opportunity for Sbarro to clear a path for future growth by restructuring its debt in an effective and timely manner,” said Nicholas McGrane, Interim President and Chief Executive Officer of Sbarro, Inc. “We are a strong company with one of the most recognizable restaurant brands in the world. Since the first Sbarro opened over 50 years ago, the Company has grown into America’s #1 quick service Italian restaurant franchise with over 1,000 locations across more than 40 countries. We look forward to emerging from this process as quickly as possible with a capital structure that will firmly position us for continued long-term success. We greatly appreciate the ongoing support of our existing stakeholders, customers, suppliers, landlords and franchisees. Their continued backing has been, and will continue to be, an integral factor in our success.”
The Company is being advised by Kirkland & Ellis LLP, its legal counsel, and Rothschild, Inc., its financial advisor.