Mon 05/20/2024 05:53 AM
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Relevant Documents:
Voluntary Petition
Press Release
First Day Declaration

Red Lobster, an Orlando, Fla.-based chain of seafood restaurants, and numerous affiliates, filed for chapter 11 protection late Sunday night, May 19 in the Bankruptcy Court for the Middle District of Florida. The company reports $1 billion to $10 billion in both assets and liabilities.

The debtors are represented by King & Spalding as counsel, Berger Singerman as Florida co-counsel, Blake, Cassels & Graydon as local Canadian counsel, Hilco Corporate Finance as lead investment banker, and Alvarez & Marsal North America LLC to provide a chief executive officer, chief restructuring officer and other personnel. Epiq is claims and noticing agent and Keen is real estate advisor. Fortress is represented by Proskauer Rose. The case number is 24-02486.

The debtors enter chapter 11 with a restructuring support agreement with their prepetition term loan lenders, of which Fortress Credit Corp. is agent. The RSA provides the debtors with $100 million in DIP financing and an agreement for a newly formed entity by the prepetition term loan lenders, RL Purchaser LLC, to serve as stalking horse bidder for the sale of all assets.

According to a stalking horse term sheet filed with the debtors’ first day declaration, the stalking horse purchase price consists of a credit bid of 100% of the DIP loans, assumption of specified liabilities and excluded cash that would remain with the sellers at closing.

The debtors are aiming for a 75-day sale process, according to milestones in the DIP credit agreement, which contemplate the following:
  • May 21: Entry of interim DIP financing order;
  • June 18: Entry of final DIP financing order; Entry of bidding procedures order;
  • July 23: Auction, if necessary;
  • July 29: Entry of sale order; and
  • Aug. 2: Sale consummation.
The first day declaration of Red Lobster CEO Jonathan Tibus, a managing director at Alvarez & Marsal, says the debtors undertook efforts prior to filing to right-size the company’s restaurant footprint, and on May 13 determined to close and vacate 93 non-performing stores that were deemed “financially burdensome.”

As of the petition date, the debtors are party to two prepetition credit agreements with outstanding funded debt obligations of approximately $294 million in the aggregate, as detailed in the chart below.

Fortress Credit Corp. is the administrative agent for the term loan, and Wells Fargo is the administrative agent for the ABL facility. There are no loans outstanding under the ABL facility, which has an aggregate commitment of up to $100 million with a $40 million sublimit for letters of credit.

Pursuant to an intercreditor agreement, Wells Fargo has a senior lien on certain current assets (e.g., cash, cash accounts, inventory and credit card receivables) and Fortress Credit Corp. has a senior lien on all of the debtors’ other assets.

Prior to the petition date, the debtors were unable to obtain additional funds from equity sponsor Thai Union, which is the majority holder of the debtors’ equity interests. Likewise, negotiations to create a new equity structure with Thai Union retaining a minority interest also failed. WIthout financial support from Thai Union, the debtors’ prepetition term loan lenders were not willing to make any further loans outside of a chapter 11 process, the declaration says.

The first day declaration discusses the company’s various “missteps,” detailing the former CEO Paul Kenny’s decision to add the “Ultimate Endless Shrimp” promotion as a permanent item on the menu, despite “significant pushback” from other members of management. Tibus says that this created operational and financial issues, costing $11 million and “saddling” Red Lobster with “burdensome supply obligations, particularly with its equity sponsor Thai Union.” The debtors are “currently investigating the circumstances around these decisions,” and others by Thai Union and Kenny related to the outsized control Thai Union exerted as equity sponsor, 100% owner of Red Lobster Master Holdings and a large-scale shrimp supplier to the company.

The debtors also intend to file an application for foreign recognition of the chapter 11 cases in Canada under Part IV of the Companies Creditors Arrangement Act, or CCAA.

The debtor’s largest unsecured creditors are as follows:

Reorg First Day will provide a full summary once the first day briefing is complete.
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