BANGALORE (Reuters) - Struggling pizza chain Sbarro Inc said it filed for bankruptcy protection under Chapter 11, in a move aimed at eliminating about $200 million of its debt.
Melville, New York-based Sbarro is seeking court approval to enter into a $35 million debtor-in-possession financing agreement, which it has secured with some of its existing first-lien lenders.
The Sbarro family started their company as a salumeria, or Italian grocery store, in Brooklyn in 1956 soon after immigrating to the United States from Naples, Italy.
Today, the company sells pizza, pastas and other Italian food through more than 1,000 restaurants in 30 countries; its ubiquitous green, white and red banner is a familiar sight in malls, rest stops and airports.
Sbarro's filing for bankruptcy would make the company the latest in a number of restaurant chains, including Fuddruckers and Charlie Brown's Steakhouse, who have succumbed to the economic downturn and a drop in consumer spending.
Sales at the company got hammered during the recession as customers chose to eat at home to save money. Traffic also suffered in malls, where many of Sbarro's restaurants are located.
The debtor-in-possession financing together with its cash flow from operations will provide the company with sufficient liquidity to meet its post-petition operating expenses and maintain normal operations, the company said.
The company, which in January hired bankruptcy and restructuring advisers and lawyers, added that it is in discussions with lenders on terms of the proposed exit financing.
Sbarro's lenders include Bank of America (BAC.N) and private equity owner MidOcean Partners, which purchased the company through a more than $400 million buyout in 2007.
MidOcean Partners and Ares Corporate Opportunities Fund have agreed to backstop a $30 million rights offering and the proceeds will be used to repay the debtor-in-possession financing.
The company expects to reduce its current debt obligations to about $175 million, by converting all of its existing second-lien debt and senior notes to equity.
Reporting by Renju Jose and Nivedita Bhattacharjee; Editing by Jarshad Kakkrakandy