Sbarro Files Joint Plan of Reorganization and Disclosure Statement

Wed Aug 10, 2011 7:30am EDT

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Sbarro Files Joint Plan of Reorganization and Disclosure Statement

Plan Sponsored By First Lien Lenders Proposes To Reduce Sbarro’s Debt By Approximately $295 Million

$18.6 Million New Money Term Loan To Be Provided By Certain Prepetition First Lien Lenders Upon Emergence

Plan Is Subject To Overbid Process To Maximize Creditor Recoveries

Sbarro, Inc., and its domestic subsidiaries (“Sbarro” or the “Company”), announced today that it has filed a Joint Plan of Reorganization and related Disclosure Statement with the U.S. Bankruptcy Court for the Southern District of New York. The Company, with the assistance of its advisors and the Restructuring Committee of its Board of Directors, has proposed a plan sponsored by certain of Sbarro’s first lien lenders as its stalking horse restructuring plan.

Under the terms of the proposed Plan, Sbarro expects to reduce its debt by approximately 73%, or $295 million (from approximately $405 million to $110 million, plus any amounts funded under a new money term loan facility), by:

  • converting 100% of the outstanding amount of the $35 million post-petition debtor-in-possession financing into an equal amount of a newly issued $110 million senior secured exit term loan facility;
  • converting approximately $173 million in prepetition senior secured debt held by the Company’s prepetition first lien lenders into the remaining exit term loan facility and 100% of the common equity of the reorganized company (subject to dilution by shares issued under a management equity plan); and
  • eliminating all other outstanding debt.

Upon emergence from the Chapter 11 process, Sbarro’s prepetition first lien lenders would own substantially all of the Company’s equity. Certain of the Company’s pre-petition first lien lenders have also committed, subject to the satisfaction of certain conditions, to provide Sbarro with an $18.6 million new money term loan facility to be used for general corporate and working capital needs following emergence, which will provide the Company with sufficient liquidity at emergence. In addition, the Company expects to generate additional cash from operations through the end of the year.

A hearing to consider approval of the disclosure statement for the proposed plan is scheduled for September 7, 2011.

Nicholas McGrane, Interim President and Chief Executive Officer of Sbarro, said, “The plan gives us a clear path to emerge from the bankruptcy process with significantly reduced debt and increased financial flexibility and liquidity. Sbarro continues to perform well, experiencing positive same store sales and outpacing mall traffic in the first half of 2011. Despite a challenging economic environment, Sbarro remains a strong company with one of the most recognizable restaurant brands in the world. As we seek to implement our balance sheet restructuring, Sbarro’s restaurants will continue to operate in the normal course and without interruption and will be positioned to compete more effectively going forward.”

To ensure maximum recoveries for all stakeholders, Sbarro intends to file shortly a motion to approve bidding procedures and establish an auction process for interested parties to “top” the stalking horse proposal in the current plan while the Chapter 11 cases are still pending. This overbid process will also allow qualified bidders acceptable to a steering committee of the Company’s first lien lenders to take advantage of a $110 million “stapled” financing option offered by certain of the Company’s first lien lenders in support of any qualified overbid. The Company is currently in discussions with a number of interested parties considering submitting competing proposals.

The Company is being advised by Kirkland & Ellis LLP, its legal counsel, and Rothschild Inc., its financial advisor. Cantor Fitzgerald Securities, the agent for Sbarro’s first lien lenders and post-petition debtor-in-possession lenders, is being advised by Davis Polk & Wardwell LLP, its legal counsel, and Conway Del Genio Gries & Co., LLC, its financial advisor.

Sbarro filed for bankruptcy protection on April 4, 2011. The chapter 11 cases are pending before the Honorable Shelley C. Chapman in the United States Bankruptcy Court for the Southern District of New York under case number 11-11527 (SCC).

For more information about the reorganization, please visit: www.sbarro.com.

About Sbarro, Inc.

Based in Melville, New York, we are the world's leading Italian quick service restaurant concept and the largest shopping mall-focused restaurant concept in the world. We have more than 1,000 restaurants in more than 40 countries. Sbarro restaurants feature a menu of popular Italian food, including pizza, a selection of pasta dishes and other hot and cold Italian entrees, salads, sandwiches, drinks and desserts. Additional information is available at http://www.sbarro.com/.

Forward-looking statements

There can be no assurances that any restructuring or acquisition of the Company will be successful, or the timeframe in which any such restructuring or acquisition would occur. This press release contains "forward-looking statements," within the meaning of the federal securities laws that involve risks and uncertainties. All statements herein that address activities, events, conditions or developments that the Company expects or anticipates will or may occur in the future are generally forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance, achievements or transactions of the Company and its affiliates to be materially different from any future results, performance, achievements or transactions expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include: (i) the occurrence of any event, change or other circumstance that could give rise to the termination of any interest in the Company or any agreements entered into with the Company's stakeholders regarding a proposed plan of reorganization, (ii) the risk that the proposed reorganization and the restructuring of its debt will not be accomplished as a result of future developments, including the Company's future financial performance, decisions of the bankruptcy court and actions and decisions of the Company's various creditor groups, (iii) the Company’s ability to successfully address the debt held by its existing first-lien lenders, and (iv) the impact of the bankruptcy filing and the bankruptcy process on the Company’s operations and financial condition, including its liquidity. Other factors are described in the Company’s prior filings with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise any forward- looking statements, whether as a result of new information, future events or otherwise. The Company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

Sard Verbinnen & Co
Jim Barron / Nathaniel Garnick, 212-687-8080