On Monday, May 29, 2014, the United States Bankruptcy Court for the Southern District of New York approved Sbarro LLC’s plan of reorganization, paving the way for the pizza restaurant chain to exit bankruptcy.  Sbarro filed for chapter 11 protection earlier this year with a prepackaged plan that allowed its prepetition secured lenders to swap over $148 million in debt for control of the reorganized business if higher or otherwise better purchasers for Sbarro’s business did not overbid.  When no alternative purchasers materialized, Sbarro moved forward with its debt-for-equity swap plan.  The Sbarro creditors’ committee, represented by Cooley LLP, opposed the treatment offered to unsecured creditors, including landlords of closed restaurants and certain food suppliers under the initial plan, because it provided them with no return.  After hard-fought negotiations, in late April, the creditors’ committee, Sbarro and its lenders reached an agreement whereby $1.25 million would be set aside for holders of unsecured claims and their advisors.

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In addition to providing a return to unsecured creditors, the revised Sbarro plan also allows the restaurant chain to continue doing business with many of the company’s vendors and landlords whose contracts will be assumed as Sbarro emerges from bankruptcy.  Moreover, the creditors’ committee secured the lenders’ agreement not to sue trade creditors to recover money paid to them in the 90 days before Sbarro filed for bankruptcy. 

Confirmation of Sbarro’s plan completes its second bankruptcy restructuring in record speed—less than 2½ months.

Topics:  Chapter 11, Commercial Bankruptcy, Debt-for-Equity Swap Plans, Franchises, Reorganizations, Resorts & Restaurants, Sbarro, Secured Creditors, Unsecured Creditors

Published In: Bankruptcy Updates, General Business Updates, Finance & Banking Updates, Franchise Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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