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Sbarro Filing for Ch. 11 Bankruptcy Protection


Customers are served at Sbarro restaurant in San Jose, Calif., Monday, April 4, 2011. Pizza and pasta chain Sbarro Inc. said Monday it is filing for bankruptcy reorganization protection as it works to restructure. (AP Photo/Paul Sakuma)

Pizza and pasta chain Sbarro Inc. said Monday that it is filing for Chapter 11 bankruptcy protection as it works to restructure.


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The Melville-based restaurant chain has suffered, like many restaurants, since consumers clamped down on spending in the recession. It didn’t help that many of Sbarro’s restaurants are located in retail malls, which shoppers steered clear of during the depths of the economic downturn. Rising food costs, particularly for cheese and flour, have added to its woes of late.

Sbarro is also strapped by debt it took on when private-equity firm MidOcean Partners bought it in January 2007.

The bankruptcy filing was expected, as reports emerged last week that the company was considering a prepackaged deal to help it reorganize.

Sbarro had total assets of approximately $471 million and about $486.6 million in debt, according to the bankruptcy filing.

Sbarro said it has reached a deal with lenders and noteholders on a reorganization plan that will get rid of about $200 million of its debt, which covers more than half of its total debt.

Sbarro is also seeking approval from the U.S. Bankruptcy Court for the Southern District of New York for a $35 million bankruptcy financing agreement with certain existing first-lien lenders. The company says that the financing, combined with its existing cash flow from operations, would give it enough liquidity to meet its 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,” Interim President and CEO Nicholas McGrane said in a statement.

Sbarro got its start as an Italian grocery store in Brooklyn in 1956, with its first mall-based restaurant debuting in 1967, according to the company’s website.

In the bankruptcy filing, Sbarro said it was hurt in 2007 and 2008 by increasing costs for cheese and flour, with its troubles escalating in 2009 when mall traffic dropped during the recession.

“Price increases and cost-cutting measures taken to combat commodity inflation and maintain earnings during this difficult period contributed to challenges with the brand and performance lagged the rebound in mall traffic beginning in early 2010,” the filing stated.

Sbarro’s financial difficulties have been going on for a while. On March 3, lenders temporarily agreed for a third time not to foreclose on the company’s assets in order to recover $176.3 million in debt as Sbarro tried to regain its final footing. According to the agreements, which the company filed with the Securities and Exchange Commission, Sbarro had missed interest payments and fallen out of compliance with some debt covenants but disputed a default notice it received.

That forbearance agreement expired Friday.

Sbarro’s biggest unsecured creditor is The Bank of New York, serving as indenture trustee on $150 million in securities, the filing stated.

Sbarro had signaled in November that it had growing concerns about having enough liquidity to meet its debt obligations, and indicated in an SEC filing that there was “substantial doubt” it would be able to continue as a “going concern,” language that often foreshadows a bankruptcy filing.

Sbarro said on its website that customers will still be able to redeem gift cards, coupons and other promotional items at all of its restaurants while it reorganizes.

“There will be no impact on our ability to deliver the great food and excellent service that our customers have come to expect,” the company said.

For the first nine months of 2010, Sbarro recorded a loss of $29.3 million and revenue of $228.7 million, according to a company filing. Its third-quarter loss was approximately $5.3 million and its revenue fell 2 percent to $84 million. The company had a cash balance of $12.7 million as of Sept. 26.

Sbarro is being advised by Kirkland & Ellis LLP and Rothschild Inc.

The company has more than 1,000 locations in more than 40 countries and approximately 5,170 employees. Sbarro said it would continue to operate as usual during the restructuring process.

By MICHELLE CHAPMAN,AP Business Writer

Copyright 2011 The Associated Press.

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