Financing

A Brazilian TGI Fridays operator declares bankruptcy

SouthRock Capital, which had also operated Starbucks and Subway units, filed for Chapter 15 bankruptcy in Texas to protect its rights to the casual-dining restaurant chain.
TGI Fridays
SouthRock Capital wants to protect its rights to operate TGI Fridays. | Photo: Shutterstock.

A struggling restaurant operator in Brazil that lost its rights to operate Starbucks and Subway restaurants in the country has filed for bankruptcy in the U.S. in a bid to protect its rights to the TGI Fridays brand.

SouthRock Capital, which operated hundreds of restaurants in the country, including Eataly units and outlets in airports and along highways, declared Chapter 15 bankruptcy in Texas this week. Chapter 15 involves foreign entities seeking to protect assets in the U.S.

The company had aggressively expanded U.S. brands in Brazil, with nearly 1,600 Subway locations and 187 Starbucks units in addition to four TGI Fridays and a half-dozen Eataly locations plus 25 airport and six highway restaurants.

According to court filings, the pandemic hurt the company’s business, as did “the persistent instability of the Brazilian economy.” SouthRock’s revenues decreased 95% in 2020 alone and 70% in 2021, according to court documents.

The company raised capital largely through debt, borrowing some $57 million through various investment funds and banks.

A debt default in September last year led to the termination of the Starbucks agreement and caused lenders to call some $26.7 million in loans, according to court documents. Subway ended its relationship with SouthRock in November.

SouthRock has been working to reorganize its debts in Brazil, after some creditors “started engaging in aggressive loan recovery practices” such as enforcement proceedings and targeting the company’s assets and bank accounts.

The company says it expects to restructure in Brazil and needs the U.S. bankruptcy process to protect its assets in the U.S. “from any ongoing and potential adverse action of creditors or other parties-in-interest,” according to court filings.

In particular, according to court filings, SouthRock wants to continue operating TGI Fridays in Brazil during and after reorganization. The company also wants to stop potential litigation against the company and its founder, Kenneth Pope.

SouthRock has accumulated more than $200 million worth of losses since 2020, according to court documents. The company’s liabilities include $23.3 million in secured debts and nearly $22 million worth of unpaid royalties.

The operator’s challenges come as many brands have aggressively pushed development into international markets, typically using local companies to operate restaurants. Many large-scale brands, and even mid-sized and smaller concepts, have been working to open units outside the U.S.

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