Red Lobster Bankruptcy Filed, Secures Stalking Horse Bidder

In a significant development for the restaurant industry, Red Lobster has filed for Chapter 11 bankruptcy and may soon change ownership. The popular seafood chain, known for its Cheddar Bay Biscuits and Endless Shrimp promotions, has been struggling financially due to a series of management missteps and declining customer traffic.

Red Lobster’s financial woes became unmanageable after the company faced significant debt, coupled with a series of unfortunate decisions, including an all-you-can-eat shrimp promotion that resulted in substantial losses. The company, which filed for bankruptcy on May 19, cited a 30% drop in guest counts since 2019, and net losses of $76 million in the fiscal year before the filing.

The restaurant chain has also been hit hard by rising costs, including increased wages and higher rent expenses. The transition to a vendor-managed inventory system further strained its finances, leading to a need to pay down $27 million in loans due to insufficient collateral.

RL Purchaser LLC, a newly formed entity organized by Fortress Credit Corporation, has emerged as the stalking horse bidder with a bid of $376 million to acquire Red Lobster’s remaining assets​​. This bid, which prevents other bidders from offering a lower amount, will serve as the baseline for any potential competing offers.

Despite an initial plan to sell its assets through a traditional auction, no other bidders came forward by the July 18 deadline. Consequently, the auction scheduled for July 23 was canceled, making RL Purchaser LLC the successful bidder by default. A court hearing to approve the sale is set for July 29.

Red Lobster intends to use the bankruptcy proceedings to streamline operations and enhance efficiency. The company plans to simplify its business model, focusing on improving supply chain management and customer experience. CEO Jonathan Tibus, who took over in March, has outlined a strategic plan to make Red Lobster a better place to work, enhance customer service, and reduce costs without compromising quality.

The restructuring process will also involve the closure of underperforming locations. As of now, nearly 93 restaurants have been closed, with efforts to relocate employees to nearby locations and adjust midlevel management to minimize disruption.

The sale to RL Purchaser LLC is expected to provide Red Lobster with the flexibility needed to reorganize and address its financial and operational challenges. However, it remains uncertain if Jonathan Tibus will continue as CEO post-sale, and whether his strategic plan will be fully implemented under the new ownership.

This move marks Fortress Credit Corporation’s latest acquisition of a distressed company, following its purchases of Vice Media and Alamo Drafthouse​​. The success of Red Lobster’s turnaround will depend on effective management and the ability to attract and retain customers in a competitive dining market.