Sbarro files for Chapter 11

April 3, 2011

After much speculation about its financial struggles, Melville, N.Y.-based Sbarro Inc., the ubiquitous shopping mall pizza presence, has filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of New York.

Sbarro Inc., and its domestic subsidiaries, today announced that it has reached agreement with all of its second-lien secured lenders and approximately 70 percent of its senior noteholders on the terms of a reorganization plan that will eliminate approximately $200 million of debt. This would bring the company's debt down to about $175 million and will significantly improve its capital structure and operating flexibility.

To facilitate its restructuring, the company will use Chapter 11 to reorganize its debts, and ensure its long-term financial health, while continuing to operate in the normal course of business without interruption during the restructuring process.

In conjunction with the filing, the company is seeking court approval to enter into a $35 million debtor-in-possession (DIP) financing agreement it has secured with certain of its existing first-lien lenders. The DIP financing, together with the company's cash flow from operations, will provide Sbarro with sufficient liquidity to meet its post-petition operating expenses and maintain normal operations.

"We believe this plan represents the best opportunity for Sbarro to clear a path for future growth by restructuring its debt in an effective and timely manner," said Nicholas McGrane, interim president and CEO of Sbarro Inc. "We are a strong company with one of the most recognizable restaurant brands in the world. We look forward to emerging from this process as quickly as possible with a capital structure that will firmly position us for continued long-term success. We greatly appreciate the ongoing support of our existing stakeholders, customers, suppliers, landlords and franchisees."

Sbarro first opened more than 50 years ago and now includes more than 1,000 locations across more than 40 countries.

The company is being advised by Kirkland & Ellis LLP, its legal counsel, and Rothschild Inc., its financial advisor.

Topics: Financial Management , Financing and capital improvements , Operations Management

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