DALLAS — Read this story and more North Texas business news from our partners at the Dallas Business Journal.
Red Lobster Management LLC on July 22 filed its "designation of successful bidder" paperwork with the U.S. Bankruptcy Court for the Middle District of Florida in Orlando.
The Florida-based seafood chain's new owner will be RL Purchaser LLC, a stalking horse bidder made up of Red Lobster’s lenders, which proposed a $376 million bid.
If the restaurant company's July 19 reorganization plan holds firm, the transaction will involve an equity transfer where the buyer receives equity in the reorganized company, instead of buying the company’s assets outright.
This approach would allow Red Lobster’s lenders to own Red Lobster, maintaining the existing structure and contracts, but with debt satisfaction and operational continuity in place. The shift avoids the complexities and liabilities associated with a traditional asset sale.
The original plan was a more traditional sale, but no bidders made a play for the company by the July 18 deadline, so the auction was canceled and the stalking horse bidder won by default. The lack of bidders may have been apparent for some time, given that the change in direction was revealed at a July 10 hearing for the case.
"So, the idea is to ... maintain operational continuity and potentially reduce the costs and complexities associated with a traditional asset sale," said attorney Jeffrey Dutson of King & Spalding LLP, representing Red Lobster and appearing via Zoom during the hearing.
Judge Grace Robson seemed to support the plan during the July 10 hearing.
"It sounds to me like it makes business sense, and sense for the case, but ... I would have to see the documents," Robinson previously said. "I’m not going to pre-approve it, but I’m OK so far with the concept."
The July 19 filing made good on Dutson’s proposal and showed how money paid by the buyer — now confirmed to be RL Purchaser LLC — will be distributed:
- Lenders will get 60% of any awards won in lawsuits against the owners.
- Unsecured creditors will receive 40% of any awards won in lawsuits against the owners.
- Lawyers and other professional service providers will be paid.
- In addition to the distribution of lawsuit awards, unsecured creditors will receive a distribution based on the available funds after the lawyers are paid.
The reorganization plan includes making key departments, such as marketing and supply chain management, more efficient. While the plan does not specify which technologies will be integrated, it emphasizes the importance of enhancing customer experience and operational effectiveness.
The plan does not address certain key components. For instance:
- How Red Lobster intends to navigate competitive pressures
- Operational improvements and cost management beyond restructuring
- Red Lobster’s responses to changing consumer preferences and dining trends
- Long-term financial projections
Red Lobster filed for Chapter 11 bankruptcy on May 19. The chain's financial woes have led to restaurant closures nationwide, including two in Dallas.
Red Lobster's bankruptcy also has sparked disputes with landlords and other creditors over unpaid bills and lease terms. Landlords and other creditors have challenged the company’s proposed cure amounts and sought higher payments and security deposits, according to recent legal filings.
