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The Street

Fernanda Tronco

Nostalgic seafood restaurant chain exits Chapter 11 bankruptcy

Red Lobster Damola Adamolekun Jonathan Tibus America

The American delicacy of endless shrimp and cheddar biscuits won't be banished after all.

Tears ran down Americans' faces after a nostalgic seafood restaurant, Red Lobster, faced multiple closures while drowning in unpaid bills.

For over five and a half decades, this restaurant has been creating memories and blessing American families with an affordable yet cozy dining experience.

But the industry has experienced a downturn in recent years.

According to a study by Black Box Intelligence, same-store traffic for casual-dining restaurants decreased by 4.7% this year through mid-August compared to the same time period last year.

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Red Lobster files for Chapter 11 protection

The seafood restaurant chain filed for bankruptcy protection in May with a total debt of nearly $300 million.

Unfortunately, the restaurant was not the only one to suffer this fate, as nine other top chains in the U.S. also filed for bankruptcy this year.

In the restaurant's announcement of the filing, Red Lobster said it would remain open and continue operating during the Chapter 11 process.

The company also revealed it had received a $100 million debtor-in-possession (DIP) financing commitment from its existing lenders to ensure smooth operation.

"It allows us to address several financial and operational challenges and emerge stronger and re-focused on our growth. The support we’ve received from our lenders and vendors will help ensure that we can complete the sale process quickly and efficiently while remaining focused on our employees and guests,” said Jonathan Tibus, the company’s CEO.

Red Lobster's endless shrimp deal reaches its end

Due to customers' cautious spending amid a struggling economy, Red Lobster faced a sharp decline in foot traffic, which prompted the company to devise an unmanageable deal that helped speed up its demise.

The restaurant began offering $20 all-you-can-eat shrimp to acquire more loyal customers and hopefully increase daily traffic.

However, the low price did not match the desired outcome, as it contributed to a $11 million quarterly loss last November.

The deal was too good to be true and destined to fail. Mass amounts of premium seafood were served at such a discounted price that no traffic growth could repay it.

Since 2015, restaurant prices have risen 11% due to inflation today, which makes maintaining reduced food prices nearly impossible if wanting to generate profit.

Red Lobster exits Chapter 11 with new owner

On Thursday, Red Lobster announced that it had received court approval for its restructuring plan to effectively exit its Chapter 11 filing.

According to the plan, the investment group RL Investor Holdings LLC will acquire Red Lobster by the end of this month.

More Bankruptcy:

However, that is not the only big change for the company; there will also be a leadership transition in which Jonathan Tibus, Red Lobster's current CEO, will be replaced by former P.F. Chang's CEO, Damola Adamolekun.

“With our new backers, we have a comprehensive and long-term investment plan – including a commitment of more than $60 million in new funding – that will help to reinvigorate the iconic brand while keeping the best of its history. Red Lobster has a tremendous future, and I cannot wait to get started on our plan," said Adamolekun.