California Pizza Kitchen (CPK), facing months of unpaid leases and with a dwindling amount of cash, declared bankruptcy on Thursday, seeking to cut back on its debt load and close unprofitable locations.
The Playa Vista, Calif.-based chain, which operates about 200 locations, has more than $400 million in debt and is mostly owned by the private equity firm Golden Gate Capital along with members of the company’s management team.
The company had been seeking a possible sale since last year before the coronavirus hit. Once that happened, the company received a $30 million infusion of cash, which CEO Jim Hyatt in a bankruptcy court document called a “bridge to negotiate a comprehensive restructuring.”
Yet the company has just $13.5 million in cash on hand and four months of unpaid rent for “the majority of its locations.”
It also acknowledged receiving numerous default notices from landlords and faced lawsuits over unpaid rent.
The company has negotiated a deal with some of its lenders to provide $47 million of financing to get through the bankruptcy process. That would also shave $230 million from California Pizza Kitchen’s debt.
Not all of the company’s lenders support the deal, however. But Hyatt in his filing said CPK plans to use the time to reach a deal with remaining lenders and negotiate with its landlords “to rationalize” its footprint.
“No restaurateur in the world … has been unaffected by the COVID-19 pandemic,” Hyatt said in his filing. “For many restaurants, the COVID-19 pandemic will be the greatest challenge they will ever face.”
Hyatt largely blamed a series of trends in the restaurant industry for its financial problems, from the emergence of fast-casual in the early 2000s to shifts of dining to takeout and away from dine-in service, what it calls “the Amazon/Netflix effect,” along with third-party delivery.
But it also says the coronavirus exacerbated its problems.
The company said it has taken steps to adjust to consumer behavior, but that it also faced “a liquidity crunch” for the past two years.
The company was looking for potential buyers before the pandemic hit. “The COVID-19 pandemic severely interrupted the marketing process,” Hyatt said.
He said sales were still down 40% during the last week of June, and that cash flow was negative $18.9 million between March and June, even as the company didn’t pay any rent or interest on its loans.
“Today’s announcement is a step towards a stronger future for California Pizza Kitchen,” Hyatt said in a statement. “This agreement from our lenders demonstrates their commitment to CPK’s viability as an ongoing business.”