On Monday, May 29, 2014, the United States Bankruptcy Court for the Southern District of New York approved Sbarro LLC’s plan of reorganization, paving the way for the pizza restaurant chain to exit bankruptcy. Sbarro filed for chapter 11 protection earlier this year with a prepackaged plan that allowed its prepetition secured lenders to swap over $148 million in debt for control of the reorganized business if higher or otherwise better purchasers for Sbarro’s business did not overbid. When no alternative purchasers materialized, Sbarro moved forward with its debt-for-equity swap plan. The Sbarro creditors’ committee, represented by Cooley LLP, opposed the treatment offered to unsecured creditors, including landlords of closed restaurants and certain food suppliers under the initial plan, because it provided them with no return. After hard-fought negotiations, in late April, the creditors’ committee, Sbarro and its lenders reached an agreement whereby $1.25 million would be set aside for holders of unsecured claims and their advisors.
In addition to providing a return to unsecured creditors, the revised Sbarro plan also allows the restaurant chain to continue doing business with many of the company’s vendors and landlords whose contracts will be assumed as Sbarro emerges from bankruptcy. Moreover, the creditors’ committee secured the lenders’ agreement not to sue trade creditors to recover money paid to them in the 90 days before Sbarro filed for bankruptcy.
Confirmation of Sbarro’s plan completes its second bankruptcy restructuring in record speed—less than 2½ months.
Cooley’s Corporate Restructuring & Bankruptcy Group was selected by the official committee of Brookstone’s unsecured creditors as its lead counsel in Brookstone’s chapter 11 proceedings, which began on April 3, 2014. Brookstone, the specialty retailer best known for its massage chairs and travel electronics, filed for chapter 11 protection in Wilmington, Delaware with a plan to sell its business to the owner of Spencer’s, another national specialty retailer, for $147 million. Spencer’s will serve as the stalking horse plan sponsor in a process supported by a majority of Brookstone’s lenders. The Spencer’s offer would be sufficient to pay out Brookstone’s first-lien debt and a portion of its second-lien debt, leaving a substantial deficiency claim that would swamp trade creditors in the general unsecured claims pool. As it entered bankruptcy protection, Brookstone had approximately 240 store locations in malls and airports across the U.S., and the Spencer’s transaction would see most of those locations remain open for business.
In connection with the proposed sale and restructuring process, Brookstone has requested approval for a postpetition financing package that would pay out its first-lien lenders and “roll-up” $30 million of Brookstone’s $137.3 million in second-lien debt.
The Brookstone Committee selected Cooley as its counsel on April 12th. Since that time, Cooley has filed objections to the terms of Brookstone’s postpetition financing and to certain aspects of its sale process. Cooley is preparing to represent the Committee at a contested hearing on postpetition financing and bidding procedures on April 25th. The Committee’s opposition to Brookstone’s financing and bidding procedures has been reported on here.