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Financing

Applebee's franchisee files for Chapter 11 bankruptcy

Wisconsin Apple, a 25-unit operator, cited cost spikes amid depressed revenues as underlying factors.
Photograph: iStock

A 25-unit Applebee’s franchisee with a concentration of units in Wisconsin has filed for Chapter 11 bankruptcy, citing a spike in costs during a prolonged period of depressed revenues because of the COVID-19 pandemic.

The operator, Wisconsin Apple, said it opted to seek protection from creditors as a way of keeping the restaurants open. “Rather than let the restaurants go dark and have over 600 employees without a job, this Chapter 11 was filed,” the company’s president, Seenu Kasturi, said in the court filing.  It also noted that the restaurants would be worth more if they remained open than they would if operations were suspended.

The documents acknowledge the filing was far slimmer than the usual Chapter 11 because the company had not planned on seeking protection. But a receiver was appointed unexpectedly at the behest of a creditor, and Wisconsin Apple came up with the paperwork overnight, according to Kasturi. The filing was made last Wednesday, Oct. 14, with follow-up materials submitted to the court over the next five days.

The flashpoint, according to a support document filed on Monday, was the company’s struggle to keep restaurants open after employees tested positive for COVID-19. The units where they work have to be closed, fumigated and otherwise sanitized of the virus before they can safely reopen, according to Kasturi. He cited two such closures since the start of October.

Bremer Bank, the institution that had financed the franchisee’s acquisition of 29 restaurants last year from another Applebee’s franchisee, demanded payment on interest and an account of Wisconsin Apple’s finances. The company made three payments totaling about $256 million, “notwithstanding the fact that the restaurants were losing $250,000 to $300,000 per four-week period,” Kasturi wrote.  But “the furnishing of financial data was not a task we could accomplish due to the many other challenges our staff faced.”

Wisconsin Apple owes between $1 million and $10 million, according to materials filed last week.

The company was formed when Louisiana Apple, then an 18-unit franchisee, bought 29 stores last November from a struggling fellow franchisee in the Midwest. The filing apparently applies only to Wisconsin Apple, with no connection to Louisiana Apple.

At the time of that transaction, the Wisconsin stores were posting some of the lowest service scores within the Applebee’s system, according to Kasturi. The ratings had risen to among the highest within the chain by March 2020, and sales and profits were increasing, he wrote in the Chapter 11 filing. “Then COVID-19 hit the United States,” he said.

About 19 other multi-unit restaurant companies have filed for bankruptcy since the start of the pandemic. They include the Ruby Tuesday, Chuck E. Cheese’s and California Pizza Kitchen chains, along with the largest franchisees of Golden Corral, Pizza Hut and Wendy’s.

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