Seafood restaurant chain Red Lobster is reportedly considering a Chapter 11 bankruptcy filing to embark on a debt restructuring endeavor, according to the report by Bloomberg citing individuals familiar with the situation.
The restaurant brand has sought counsel from the law firm King & Spalding in contemplating potential actions related to long-term contracts and a broad spectrum of leases. Challenges such as burdensome leases and labor costs have impeded Red Lobster’s cash flows, prompting discussions around debt reorganization and negotiation processes. A decision on the bankruptcy filing is pending, with the possibility of operating under Chapter 11 to facilitate the formulation of a debt reduction strategy.
Established from a single eatery in Lakeland, Florida in 1968, Red Lobster gained popularity for its signature cheese biscuits introduced in 1992. Currently, the chain operates numerous locations in the United States and Canada, in addition to international franchise establishments.
Over the years, Red Lobster has navigated changes in ownership and management, with Thai Union Group Plc assuming control in 2021. Subsequently, Thai Union reassessed its investment in Red Lobster this year.
Fortress Investment Group holds a significant lending position with Red Lobster and is actively engaged in the ongoing debt discussions. Following a leveraged buyout from Darden Restaurants by Golden Gate Capital in 2014, Thai Union acquired a 25% stake in Red Lobster before acquiring Golden Gate’s interest in the chain in 2021.
As announced in January, Thai Union booked a one-time non-cash impairment charge of THB 18.4 billion (USD 527 million) during the fourth quarter after announcing its intention to pursue an exit of its minority investment in Red Lobster. Since then, the Group received approval for a one-time waiver from bondholders to exclude the impairment from 2023 net income covenant calculation.
JP Morgan wrote in a note in January saying that this cut will allow TU to be able to book profit from 2024 onward.
Meanwhile, Japan Credit Rating Agency, Ltd. (JCR) said that Thai Union’s decision to pursue an exit of its minority investment in Red Lobster had eliminated the risk of additional capital burden.
Japan Credit Rating raised the Thai Union’s foreign currency issuer credit rating from A- to A with a stable outlook, driven by the company’s growth potential and global diversification.
The share price of Thai Union rose to a nearly 9-month high in February this year after the announcement of exiting Red Lobster.
