Just a day after filing for Chapter 11 bankruptcy, On the Border has a potential buyer.
An affiliate of Pappas Restaurants, the owner of Pappasito’s Cantina, Pappadeaux Seafood Kitchen and other casual-dining brands, has expressed interest in acquiring all of On the Border’s assets, according to bankruptcy court documents. The affiliate is in line to become the stalking-horse bidder in On the Border’s sale process, which means its bid would set the minimum asking price for the chain.
The affiliate, known as OTB Lender LLC in the documents, is also providing On the Border with $10 million in debtor-in-possession (DIP) financing to fund the company’s operations as it restructures. It is common for DIP lenders to make a bid in such cases.
On the Border was founded in 1982 in Dallas and is known for fajitas, margaritas and other Tex-Mex fare. It currently operates 60 restaurants across the U.S. Another 20 are operated by franchisees in the U.S. and South Korea.
In bankruptcy documents, the company said inflation and rising wages have hurt its traffic and profits, resulting in a “rapid loss of liquidity” in recent months.
“Casual dining restaurants are acutely impacted by consumer sensitivities to eating out versus staying in,” wrote Jonathan Tibus, the company’s chief restructuring officer, in the filing. As the cost of food and labor has risen in recent years, restaurants have increased their prices more quickly than grocers. “As a result, consumers are less inclined to eat out,” Tibus wrote.
The filing included a list of 77 underperforming restaurants that On the Border said have become a drain on its finances. These restaurants are closed, and On the Border is asking the bankruptcy court to allow it to reject the leases of those locations and abandon the properties, which are scattered across the country. These restaurants would not be part of the sale.
On the Border has more than $19.6 million in outstanding debt, including more than $3.8 million owed to distributor U.S. Foods.
Houston-based Pappas Restaurants operates about 80 restaurants across nine brands and is particularly well-known in Texas. The Pappas family has deep roots in the restaurant industry, and they have taken an interest in struggling brands before.
In 2001, brothers Chris and Harris Pappas took over management of the Luby’s Cafeteria chain in hopes of turning it around. They were ultimately unable to do so and Chris stepped down as CEO in 2021.
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