Sbarro makes pre-packaged Chapter 11 filing, eyes $35 million DIP loan

By Jennifer Lanning Drey

Savannah, Ga., April 4 - Sbarro, Inc. has reached agreement with all of its second-lien secured lenders and 70% of senior noteholders on the terms of a reorganization plan that would eliminate about $200 million of debt, Sbarro announced in a Monday news release.

The company made a pre-packaged Chapter 11 bankruptcy filing Monday in the U.S. Bankruptcy Court for the Southern District of New York.

In connection with the filing, Sbarro is seeking court approval of a $35 million debtor-in-possession financing agreement with some of its existing first-lien lenders.

The company said the DIP loan combined with its cash flow from operations will provide it with sufficient liquidity to meet its operating expenses while in bankruptcy and maintain normal expenses.

Sbarro's first-lien lenders are not parties to the restructuring agreement. The company said it is in ongoing discussions with the first-lien lenders regarding the terms of proposed exit financing.

Under the proposed restructuring, Sbarro expects to reduce its current debt by about $200 million to $175 million by converting all of its existing second-lien debt and senior notes to equity.

The company is proposing that the remaining debt continue to be held by the exiting first-lien lenders, with the maturity of that debt extended through the fifth anniversary of its emergence from Chapter 11.

MidOcean Partners III, LP and Ares Corporate Opportunities Fund II, LP have agreed to backstop a $30 million rights offering, the proceeds of which will be used to repay the DIP loan and provide the reorganized business with additional equity capital and liquidity.

"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," Nicholas McGrane, interim president and chief executive officer of Sbarro, said in the release.

"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."

DIP loan approval sought

Sbarro also filed a motion Monday seeking approval to obtain $35 million of DIP financing from some of the banks, financial institutions and other lenders under the pre-bankruptcy first-lien facility.

The DIP agent is Cantor Fitzgerald Securities.

Sbarro is seeking interim access to $16.5 million of the DIP facility.

The facility will mature in six months from closing, but the maturity may be extended for an additional three months upon satisfaction of certain conditions.

Interest will be either Libor plus 7% with a Libor floor of 1.75% or Base Rate plus 6%, at Sbarro's election.

Sbarro will pay a 0.75% fee on the unused portion of the outstanding term loan commitments under the DIP facility.

Debt details

At the time of its bankruptcy filing, Sbarro had $471.01 million of assets and $486.56 million of total debt, according to court documents.

The company's largest unsecured creditors include the Bank of New York, New York, with a $150 million indenture claim, and Vistar Corp., based in Centennial, Colo., with a $2.34 million trade claim.

Sbarro is a Melville, N.Y.-based quick-service Italian restaurant chain. The Chapter 11 case number is 11-11002.

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