Red Lobster Creditors to Weigh Bid for Assets in Chapter 11

(Bloomberg) -- A group of lenders to Red Lobster Management LLC is considering bidding for assets through a potential Chapter 11 sale process and seizing control of the seafood restaurant chain, according to people familiar with the matter.  

One possibility would be in the form of a credit bid, which allows lenders to use debt they’re owed toward an asset purchase, said the people, who asked not to be identified discussing a private matter. Discussions are ongoing and no final decision has been made, they said. 

Bloomberg News reported in April that Red Lobster was mulling a bankruptcy filing as cash flow has been hurt by onerous leases and labor costs, among other issues. That filing could come as soon as next week, the people said. Some of the people added Red Lobster has been cleaning up its portfolio over the past several days, closing unprofitable locations ahead of a court-supervised sale process. 

The chain plans to use Chapter 11 to shed some long-term contracts and renegotiate a swath of leases, including master leases which can be trickier to re-cut or ditch, according to some of the people. Some of Red Lobster’s hundreds of restaurants are old and in run-down locations, hurting profitability. 

Red Lobster lenders are getting advice from law firm Proskauer Rose, according to some of the people. Fortress Investment Group is a key creditor to Red Lobster and among those involved in the debt negotiations, Bloomberg reported last month.

Messages left with Red Lobster and Proskauer weren’t returned Wednesday, while a representative with Fortress declined to comment. 

Red Lobster traces its roots to a family-owned restaurant in Lakeland, Florida in 1968, according to its website. 

The company has gone through multiple owners and management changes in recent years. Thai Union Group Plc, which took control of the chain in 2020, this past January wrote down its stake in Red Lobster, whose “ongoing financial requirements no longer align with Thai Union’s capital allocation priorities.”

Golden Gate Capital took over Orlando, Florida-based Red Lobster from Darden Restaurants Inc. through a $2.1 billion leveraged buyout in 2014.

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