Red Lobster, the venerable casual-dining seafood chain undone by a changing consumer environment and a bad all-you-can-eat shrimp promotion, declared Chapter 11 bankruptcy protection late Sunday night in one of the biggest such filings in restaurant industry history.
The Orlando-based company said in a release that it has put itself up for sale and has an agreement with one of its lenders on a “stalking horse” purchase agreement. A stalking horse deal is an opening bid in a bankruptcy auction.
The company also said it plans to use the filing to improve operations and “simplify the business through a reduction in locations,” suggesting the brand could close more restaurants in addition to the 100 units it abruptly closed earlier this month.
Red Lobster, owned by the seafood supplier Thai Union, has $264.7 million in secured debt through Fortress Credit, according to court documents. It also owes $29.3 million to Wells Fargo.
Red Lobster has $100 million in financing commitments from its existing lenders to help the company get through the bankruptcy process.
“This restructuring is the best path forward for Red Lobster,” Jonathan Tibus, the restructuring expert appointed as CEO earlier this year, said in a statement. “It allows us to address several financial and operational challenges and emerge stronger and re-focused on our growth.”
He added that its support from lenders and vendors would enable the company to complete the sale process quickly.
(Read this for more on how Red Lobster got to this position.)
The bankruptcy filing is a monumental moment in industry history, given the chain’s history and its peak size under giant restaurant operator Darden, which sold the brand more than a decade ago.
The company has run into sales and traffic problems coming out of the pandemic, as customers shifted away from full-service chain restaurants toward either high-end brands or fast-casual and quick-service chains.
System sales last year fell 8.1% to $2.2 billion. It was famously undone by an all-you-can-eat shrimp deal that was priced too low, leading to steep operating losses. Even before then, however, the company had gone through a cycle of CEOs and closed locations.
In January, Thai Union said it planned to sell the business.
Red Lobster had been said to be preparing for filing bankruptcy, which seemed inevitable a week ago when the brand abruptly closed locations across the country.
The company’s name recognition and size, however, may well bring out plenty of suitors among investment firms betting they can turn it around.
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