UPDATE 3-Pizza chain Sbarro files for bankruptcy protection

Mon Mar 10, 2014 2:01pm EDT

* Lenders to take control, hundreds of restaurants close
    * Sbarro hopes to emerge from bankruptcy before May 7


    By Jonathan Stempel
    NEW YORK, March 10 (Reuters) - Pizza chain Sbarro LLC has
filed for bankruptcy protection for the second time in three
years after struggling with too much debt and fewer customers in
malls that house many of its restaurants.
    Lenders would take control of the Melville, New York-based
company under a "pre-packaged" Chapter 11 reorganization, which
Sbarro on Monday said could allow it to made a "quick exit" from
bankruptcy before May 7.
    Sbarro expects to cut its debt load by more than 80 percent,
and said nearly all its lenders support its restructuring, which
requires court approval. The company will invite other buyers to
submit better offers.
    Founded in 1956, Sbarro had tried to boost sales by
revamping its recipes to entice diners who increasingly favor
"fast casual" chains such as Chipotle and Panera Bread.
    But an "unprecedented decline in mall traffic" and an
"unsustainable" balance sheet necessitated a restructuring,
including the closure of hundreds of restaurants, Chief
Financial Officer Carolyn Spatafora said in a court filing.
    "Sbarro has been stuck with an outdated business model,"
said Michael Whiteman, a restaurant consultant and president of
Baum & Whiteman LLC in Brooklyn, New York. "Its biggest
shortcoming is that it sells food that has been sitting out for
a while, and more people want food made to order."
    The company said it recently closed more than 180
money-losing restaurants, and expects to shed about 50 more
locations.
    It said it now has 799 restaurants in over 40 countries,
employing more than 2,700 people. Sbarro said the bankruptcy
does not affect the 582 restaurants owned by franchisees.
    Last month, the company announced plans to close 155 of its
400 company-owned restaurants in North America.
    Sbarro was founded in Brooklyn by Gennaro and Carmela
Sbarro, a married couple who had immigrated from Naples, Italy.
    It expanded in the New York City area before launching in
1967 its typical restaurant format, which includes an open
kitchen and lets customers serve themselves.
    
    NECESSARY STEP
    Sbarro and 33 affiliates filed for protection from creditors
with the U.S. Bankruptcy Court in Manhattan.
    The company reported assets of $175.4 million and
liabilities of $165.2 million. It plans to shed $140 million of
secured debt in the reorganization. Advisers include Moelis &
Co, Loughlin Management and the law firm Kirkland & Ellis. 
    Sbarro previously filed for bankruptcy protection in April
2011, and emerged from Chapter 11 the following November.
    "The board and senior management team are committed to
ensuring Sbarro's future growth and success and today's filing
is a necessary step," Chief Executive David Karam said.
    Karam joined Sbarro last March from the hamburger chain
Wendy's Co, where he was a president.
    Whiteman said Sbarro may face an uphill struggle.
    "I don't know that it has a sustainable business over the
longer term," he said. "The way to turn the company around in
the short haul is to get out of money-losing leases and close
stores, which it has been doing."
    The case is In re: Sbarro LLC, U.S. Bankruptcy Court,
Southern District of New York, No. 14-10557.
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