Garden Fresh Restaurants Corp. attributed its bankruptcy this week to a combination of lower sales and higher costs, thanks to rising minimum wages and growing costs for workers compensation and rent.
The owner of Souplantation and Sweet Tomatoes also has more than $175 million in debt to several lenders, led by Cerberus Business Finance LLC, according to one filing.
Another of the company’s lenders, Cortland Capital Market Services LLC, has agreed to submit a bid for the company’s assets. Cortland leads a group of lenders that hold $35.7 million of Garden Fresh’s debt, according to court documents.
Cortland would act as a “stalking horse bidder” for Garden Fresh in an auction, meaning that any other bidder would have to outbid the lender to buy the company. Cortland also provided a $4.5 million loan to fund Garden Fresh’s operations as it works its way through bankruptcy.
Garden Fresh filed for federal credit protection this week, with plans to close 20 to 30 of its 123 locations, just a month after a potential investor opted against making a bid for part of the company, according to court documents.
According to an affidavit from CEO John Morberg, filed on Monday, the company saw declining sales “consistent with the declines experienced in the entire restaurant industry.”
He also wrote that the company’s workers’ compensation plans “greatly pressured cash flows” while rising minimum wages, higher health care costs and rent increases at many locations also hurt profits.
The higher rent costs came at restaurants the company sold to investors, and then leased back, in what is known as a sale-leaseback deal.
Beginning in January, Garden Fresh began looking for a buyer or a solution to its financial issues. Four potential buyers indicated interest, but none would make a bid for the buffet chains.
Efforts to restructure the company’s debt over the spring failed, and then in August a potential investor in the company backed out of a potential deal.
“Restaurants have been facing substantial pressure due to sales declines, as well as cost increases, as evidenced by the large number of recent Chapter 11 cases filed by restaurants,” Morberg said in the document.
Indeed, bankruptcies have been coming at a furious pace in recent months amid a broad slowdown in industry sales. In addition to Garden Fresh, both Così Inc. and, on Tuesday, Don Pablo’s filed for bankruptcy protection in just the past week. Other companies that have filed include Logan’s Roadhouse, the owners of Fox & Hound and Champps and the owners of Ryan’s, Old Country Buffet and HomeTown Buffet.