Court Approves Sbarro Pizza’s Bankruptcy Exit Plan
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Court Approves Sbarro Pizza’s Bankruptcy Exit Plan

November 24, 2011

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Sbarro Inc., which owns fast-food pizza restaurants across the country, recently received approval from a bankruptcy judge for its planned exit from bankruptcy protection.

According to a recent report in Bloomberg Businessweek, Sbarro’s bankruptcy exit plan requires the company to give ownership to senior lenders to whom the pizza chain owed roughly $176 million before the bankruptcy proceedings.

U.S. Bankruptcy Judge Shelley Chapman approved the company’s restructuring plan, which gives lenders an opportunity to manage the company instead of obtaining repayment for their previous loans, in a Manhattan courtroom this week.

Sources indicate that the plan, which gives Sbarro some optimism for its life after bankruptcy, will give first-lien lenders between 69 and 95 percent of their requested claims.

The plan, however, does not offer any payments to second-lien creditors, who are owed about $34 million, nor does it satisfy claims for the company’s unsecured creditors, which are collectively owed as much as $173 in debts.

This is fairly typical in bankruptcy restructuring, as creditors with higher priorities are satisfied first, while the lower-priority creditors are often left empty-handed.

By requiring the company to give ownership to its senior creditors, but allowing it to dismiss debts owed to secondary creditors, the bankruptcy court has attempted to make Sbarro honor its financial commitments while allowing the company to stay afloat.

Sbarro’s financial troubles started a few years ago. The company blames reduced consumer traffic at shopping malls and heightened levels of competition at food courts as primary reasons for its financial malaise.

These trends, however, did not prevent the private equity firm MidOcean Partners from purchasing the company in 2007. To be fair, though, decreased consumer spending, particularly at shopping malls, did not reach serious levels until the recession struck in 2008.

 Despite the recession, Sbarro was able to weather the financial storm for three years before finally filing for bankruptcy in April 2011. The bankruptcy exit represents a fresh start for a company with modest beginnings.

Sources indicate that the company, which is based in Melville, New York, started as a small Italian restaurant in Brooklyn in 1956. Today, the company has more than 1,000 franchised and company-owned Sbarro restaurants in the United States.


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