Red Lobster files for Chapter 11 bankruptcy but plans to keep restaurants open during restructuring. The seafood chain aims to optimize locations, address challenges, and pursue a sale.
Shortly after announcing that they were closing locations in multiple states, Red Lobster, the seafood lovers casual dining chain known for endless shrimp baskets and cheddar bay biscuits, filed for Chapter 11 bankruptcy protection yesterday. Let's see why.
The company, which operates over 600 restaurants across the United States, announced that it plans to use the bankruptcy proceedings to restructure its operations, optimize its real estate footprint by closing underperforming locations, and pursue a sale of pretty much all of its assets as a going concern. According to the court filings, Red Lobster has entered into a "stalking horse" purchase agreement, which means that a company formed and controlled by its existing lenders has already offered to purchase the company's assets but that deal is subject to competition from higher bids at a court-supervised auction.
"This restructuring is the best path forward for Red Lobster," said Jonathan Tibus, the company's CEO. "It allows us to address several financial and operational challenges and emerge stronger and re-focused on our growth." Despite the bankruptcy filing, Red Lobster's restaurants will remain open and operating as usual during the Chapter 11 process. The company has received a $100 million "debtor-in-possession" financing commitment from its existing lenders, which will help ensure that operations are unaffected. That said, interest rates on loans are so high these days that this may sink them quicker than righting the ship, and it may make them hard-pressed to find a decent offer if the new owners have to also take on that debt at current rates. It puts their lenders in the catbird seat to acquire them since they would be absorbing their own loans.
Red Lobster's financial troubles can be traced back to 2022, when an ill-advised "all-you-can-eat shrimp" promotion strained the company's profit margins. The promotion, which was meant to attract customers in the post-pandemic financial doldrums, proved so popular that the chain was unable to keep up with the demand. Since then, Red Lobster has been plagued by corporate kerfuffles, with four different CEOs taking the helm in the past two years. The company's Thai owners, who had invested $530 million in the chain, were recently forced to write off their investment as a loss.
Despite these challenges, Red Lobster remains one of the most recognizable seafood restaurant chains in the United States. Founded in 1968, the company has built a loyal following over the years, thanks to its affordable prices and popular menu promos like its recurring Lobsterfest menu. While the future of Red Lobster remains uncertain, the company's filing has sparked a wave of nostalgia among its most loyal customers, who are hoping that the restructuring will allow the chain to chart a new course and continue serving up its signature seafood for years to come.