Sbarro Returns to Chapter 11 with Prepack

NEW YORK (The Deal) -- Pizza chain Sbarro has ordered up another slice of Chapter 11 with a prepackaged reorganization plan supported by lenders holding 98% of its debt.

The Melville, N.Y., company filed a petition on Monday, March 10, in the U.S. Bankruptcy Court for the Southern District of New York in Manhattan. Judge Martin Glenn is assigned to the case.

Sbarro, which restructured in the same court in 2011, in a Monday statement said the supporting lenders would provide $20 million in debtor-in-possession financing that would convert to exit financing. The plan would eliminate the company's $140 million in outstanding secured debt, and "priority lenders" would receive substantially all of the reorganized company's equity. Overall, the plan would eliminate more than 80% of the company's outstanding debt, "resulting in a much stronger organization."

"The agreement among the company's lenders is an indication of the support and confidence they have in the growth strategies developed by the new management team over the past nine months," CEO David Karam said in the release. "The board and senior management team are committed to ensuring Sbarro's future growth and success, and today's filing is a necessary step to achieve those goals."

The Deal Pipeline reported in February that the company was closing 155 of its company-owned North American eateries. The company has 800 remaining locations, consisting of 250 company-owned stores in the U.S.; 175 franchised locations in the U.S. and Canada; and more than 400 franchised locations overseas. The company said it opened 81 new stores in 2013.

Sbarro spokesman Jonathan Dedmon of Dilenschneider Group Inc. could not say whether the prepackaged plan had been filed with the court.


Standard & Poor's on Jan. 17 downgraded the company to CCC- from CCC+, with analyst Mariola Borysiak telling The Deal Pipeline that Sbarro's $146 million in debt doesn't include any financial maintenance covenants, which are common default catalysts for financially troubled companies. The company's Monday statement listed only $140 million in secured debt.

Moody's Investors Service also downgraded the company's corporate family rating to Ca from Caa1 and its probability of default rating to Caa3-PD from Caa1-PD on Jan. 17, warning, "At these performance levels, Sbarro's capital structure is unsustainable and the potential for a payment default over the near term is high."

The staple of mall food courts previously filed for Chapter 11 on April 4, 2011, exiting Nov. 16, 2011, with a plan that swapped $172.7 million in first-lien debt for a $75 million last-out exit term loan plus all the equity in a reorganized Sbarro. Certain first-lien lenders also provided rollover and new-money term loans totaling $70 million.

Second-lien lenders, owed roughly $34.2 million, were wiped out, as were general unsecured creditors, owed between $163.3 million and $173.3 million.

Certain trade creditors that Sbarro continued to do business with split $500,000 pro rata.

Equity interests in Sbarro parent Sbarro Holdings LLC were wiped out.

Sbarro listed $100 million to $500 million in assets and liabilities in its latest petition.

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