The restaurant industry has suffered from financial distress since the Covid-19 pandemic in 2020 shut down many establishments for months with some closing permanently.
The financial problems restaurants faced forced many to file for Chapter 11, Chapter 7 and sometimes Chapter 15 bankruptcy to allow companies to reorganize, sell or sometimes liquidate their businesses.
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The most recent major restaurant bankruptcy was Red Lobster's Chapter 11 filing on May 19, which resulted in the casual restaurant chain closing 93 locations nationwide. Court filings showed that 228 of the chain's restaurants are not profitable in their current lease situations, which could lead to another 135 restaurant closings.
A couple of fast-casual Mexican restaurant chains have also filed for Chapter 11 protection after the Covid pandemic, inflation and other factors led to financial distress. Tex-Mex chain Tijuana Flats Restaurants, which had as many as 123 locations, on April 19 filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Middle District of Florida, sold the company to a new ownership group, and closed 11 of its locations.
Another Mexican fast-casual chain Rubio's Coastal Grill suffered from a steep rise in the minimum wage in California and on June 5 filed for Chapter 11 protection to restructure its debt and close 48 locations in the Golden State. The restaurant chain, which had 150 locations at its peak, had 134 units in California, Arizona, and Nevada before closing the 48 restaurants.
TGI Fridays franchisee files for bankruptcy
Finally, Brazil-based restaurant chain operator SouthRock Capital on June 12 filed for Chapter 15 bankruptcy protection in the U.S. Bankruptcy Court for the Southern District of Texas seeking recognition of its Brazilian bankruptcy case as a foreign proceeding.
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The São Paulo, Brazil, restaurant operator, whose website says it operates eight TGI Fridays restaurants in Brazil, filed its Chapter 15 petition to protect its rights to the TGI Fridays brand and any other assets it has in the U.S. A Chapter 15 filing places an automatic stay on any legal actions against the debtor while the case proceeds.
SouthRock at one time operated hundreds of restaurants in Brazil, including about 1,600 Subway and 187 Starbucks units, 6 Eataly locations and 25 airport and six highway restaurants, Restaurant Business reported. The Covid-19 pandemic and an unstable Brazilian economy severely affected the company as revenues declined by 95% in 2020 and 70% in 2021.
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The private equity firm secured $57 million in loans from investment funds and banks, but a loan default in September 2023 led to a termination of its Starbucks (SBUX) agreement, which triggered calls on over $26 million in loans. Subway also terminated its agreement with SouthRock in November 2023.
The debtor sought bankruptcy protection to reorganize its business in Brazil in October 2023 after certain creditors began using aggressive loan recovery practices that included targeting its assets and bank accounts. A Brazilian court granted the debtor bankruptcy protection on Dec. 12 as it seeks to restructure its business and continue operating.
The debtor intends to operate its TGI Fridays restaurants in Brazil during its bankruptcy case and upon exit from Chapter 15 and its Brazilian proceeding.
Related: Another popular fast-food chain files for Chapter 11 bankruptcy
TGI Fridays, which operates nearly 600 restaurants in 44 countries, on April 16 said that its owner TriArtisan Capital Advisors reached an agreement to sell the Dallas-based restaurant chain to its largest franchisee Hostmore in a $220 million deal that's expected to close in the third quarter. TGI Fridays is expected to become a public company on the London Stock Exchange after the deal closes. Hostmore is TGI Fridays' largest franchisee globally with 89 units.
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