Sbarro Inc., the iconic Italian mall pizzeria, expects to emerge from bankruptcy protection on November 28, just five short months after filing for Chapter 11.
Sbarro Inc. is a Melville, New York based, private-equity-owned pizzeria that was founded in 1956. Originally the restaurant was an Italian grocery store in Brooklyn, which was opened by the Sbarro family, who had recently emigrated from Italy. The chain became synonymous with mall food courts in 1967, when they opened their first mall location. Now Sbarro Inc. has 1,045 locations in 42 countries.
The company filed for reorganization back in April to try to cut its debt and restructure its balance sheet. The business, however, is performing well. MidOcean Partners, a private equity firm, had acquired the chain in 2007 at a cost of $417 million, and was quickly hit with rising food costs and the downturn of the economy. Unfortunately the firm also funded the purchase with over $150 million in junk food bonds at a steep interest rate of 10.375%.
On top of buying the restaurant chain while it was at the top of the market, MidOcean Partners bought right before the recession. Prices on key ingredients like cheese and flour soared in 2007 and 2008, just as mall traffic slowed down. Their average meal cost $8.18 a person, which was far too much for working Americans.
MidOcean Partners did try to revitalize the business before ultimately deciding to file for bankruptcy. They installed a new management team and appointed one of their own managing directors as CEO. Unfortunately the move was too little too late and the firm had no other choice but to file for bankruptcy.
The restructuring will allow Sbarro to get back on their feet by reducing their debt by $195 million, which is more than half of their current debt. The bankruptcy will also allow for an infusion of roughly $35 million of new capital.
“Sbarro is a strong company with an unsustainable balance sheet,” the company said. “Sbarro intends to emerge expeditiously from Chapter 11 as a stronger, well capitalized and more competitive company.”
Sbarro has remained open throughout the bankruptcy and encourages its customers to still use their gift cards and coupons. Hopefully by next week, the bankruptcy will be behind them and they can look forward to a bright future. If you’ve been considering filing for bankruptcy, contact an experienced Rio Grande Valley bankruptcy lawyer to learn more about your options.