Sbarro amends Chapter 11 plan to reduce debt

Oct. 9, 2011

Sbarro Inc. has filed an Amended Disclosure Statement and related Amended Plan of Reorganization with the U.S. Bankruptcy Court for the Southern District of New York.

Under the Amended Plan, Sbarro will significantly reduce its total debt and expects to emerge with approximately $110 million in net debt. Also, the company's first lien lenders will become the new owners of the business by converting the majority of their debt to equity.

The first lien lender sponsors have agreed to provide the company with new money commitments of up to $35 million, which will provide significant additional liquidity for the company's post-emergence operations.

The amended plan has the support of all of Sbarro's key stakeholders.

"The amended plan is a positive development for Sbarro that will allow the company to emerge from bankruptcy in the very near term with significantly reduced debt. The plan also provides the company with approximately $35 million of new capital to continue our turnaround effort, which has already increased same store sales year-to-date, including continued improvement in the third quarter," said Nicholas McGrane, interim president and CEO of Sbarro.

Additionally, because of this process, Sbarro has been able to improve lease terms at a number of locations while closing some underperforming restaurants, further positioning the company for accelerated growth.

The exit financing package provided by the first lien lenders allows the Sbarro to exit bankruptcy in the fourth quarter with significant cash interest coverage. As the company enters the fourth quarter – historically its busiest period – it expects to be able to generate positive cash flow before year-end, resulting in net leverage below $100 million and expected liquidity of approximately $40 million by the end of 2011.

Sbarro will seek approval of the amended disclosure statement at a hearing on Oct. 11. If approved, the company will begin to solicit votes on the Amended Plan, which it expects to confirm on Nov. 17.

Sbarro filed for bankruptcy protection on April 4.

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Topics: Business Strategy and Profitability , Financial Management , Financing and capital improvements , Operations Management

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