Italian quick-service operator Sbarro Inc. said Thursday it is exploring options, including sale discussions with an unnamed “sophisticated bidder,” instead of continuing with its pre-petition reorganization plan in Chapter 11 bankruptcy proceedings.
The potential buyer is not a private equity or financial firm, according to Bloomberg.
Melville, N.Y.-based Sbarro said it plans to continue negotiations with its pre-petition creditors for a stand-alone plan of reorganization.
Sbarro filed for Chapter 11 protection April 4 in the U.S. Bankruptcy Court for the Southern District of New York, seeking to cut its $486.6 million debt by $195 million through conversion of existing second-lien debt and senior notes to equity.
“We believe it is in the best interest of all stakeholders for the company to dedicate its resources to exploring all available value-maximizing alternatives,” Nicholas McGrane, Sbarro’s interim president and chief executive, said in a statement.
Earlier: Sbarro Inc. files for Chapter 11
To continue operations, Sbarro struck a deal for $35 million in debtor-in-possession capital with its first-lien bank lenders. That was backstopped by Ares Corporate Opportunities Fund II LP, which holds the majority of Sbarro’s unsecured notes, and MidOcean Partners III LP, a private-equity firm that owns a majority stake in Sbarro.
“We greatly appreciate the initial and continued interest of Ares and MidOcean in the company, as well as the continued participation of the first-lien lenders and the new interest from a sophisticated bidder,” McGrane said.
At the end of March, Sbarro operated 475 units, franchised 555 and had 18 joint-venture restaurants with such brands as Sbarro, Mama Sbarro’s Pizzeria and Carmela’s Restaurant Pizzeria.
McGrane added, “As we move through this process, Sbarro’s restaurants will continue to operate in the normal course.”
Sbarro was founded 55 years ago Brooklyn, N.Y. After growing to 83 company-owned and 53 franchise locations, the company went public in 1985. However, the Sbarro family took the operation private in 1999.
In 2007, MidOcean Partners and affiliates acquired Sbarro in a buyout reportedly valued at more than $400 million.
After the recession hit in 2008 and 2009, Sbarro launched a turnaround effort in 2010 with changes in executive staff, including the installment of McGrane, a MidOcean managing partner, as chief executive, replacing Peter Beaudrault.
Sbarro, in court documents, forecast 2011 adjusted earnings of $30 million, down from earnings of from $38 million in 2010.
For the nine months ended Sept. 26, Sbarro reported a net loss of $29.3 million, compared with a loss of $36.7 million for the same nine months of 2009. Revenues for the nine-month period were $239.1 million, compared with $245.2 million for year-ago period.
Same-store sales for the nine-month period fell 3.1 percent at U.S. corporate stores and 3.4 percent at franchised locations, marking improvements from drops of 5 percent and 5.4 percent at domestic company and franchised restaurants, respectively, in the same 2009 period.
Sbarro has units in more than 40 countries.
Contact Ron Ruggless at [email protected].