After closing 37 restaurants over the last few weeks, CraftWorks Holdings filed for Chapter 11 bankruptcy protection Tuesday in the U.S. Bankruptcy Court for the District of Delaware.
CraftWorks — the Nashville, Tennessee-based parent company of the Gordon Biersch, Rock Bottom, Logan’s Roadhouse and Old Chicago chains, among others — also requested approval of a “stalking horse” asset purchase agreement with an affiliate of its senior lender, Fortress Credit Co., in order to start a competitive bidding process for the business.
As of the March 3rd filing, CraftWorks said its outstanding debt was about $235.4 million, including secured debts of $131.7 million to Fortress Credit Co., and $4.7 million and $35 million to Wells Fargo Bank/National Association, as well as unsecured debts of $30 million to Roadhouse Holding Inc. and $34 million to Wells Fargo Bank/National Association.
In a press release, CraftWorks CEO Hazem Ouf said the company had “made significant progress” over the last 16 months to transform its business and position its brands “for long-term growth and success.”
“As a further step forward in our transformation, we exited in recent weeks a select group of our locations that were our poorest performers,” he said. “We are now looking forward to completing an expedited process that we are confident puts our business on solid financial footing for the future.
“Our goal is for CraftWorks Holdings to emerge with a strengthened balance sheet and a further optimized real estate portfolio that will allow us to execute on our growth strategy, compete more effectively in the casual dining environment in areas in which we have a proven track record of success, and continue to invest in enhancing the dining experience for our millions of raving fans nationwide, whom we look forward to serving for many years to come.”
In recent weeks, CraftWorks has shuttered outposts in New York, Virginia, Maryland, California, Arizona, Texas, Idaho, Hawaii, Mississippi and Washington, D.C.
CraftWorks said its 261 company-owned locations in 39 states and Washington, D.C., would continue operating during the bankruptcy process. The company added that its 77 franchise locations are not included in the bankruptcy proceeding and continue to operate as usual.
The deal with Fortress would provide CraftWorks with at least $138 million, as well as assume some debts and liabilities, cutting the company’s debt load by more than 60% and providing it with liquidity.
In Tuesday’s court filing, CEO Ouf said the company’s capital structure has been overleveraged since the November 2018 acquisition of the Logan’s Roadhouse chain. Following the Logan’s transaction, CraftWorks projected revenue growth of 1.5% in 2019, but those projections fell short as sales declined about 1%, resulting in a gross margin loss of about $27 million.
Nevertheless, Ouf, who described CraftWorks as the “leading operator and franchisor of steakhouses and brewery and craft beer focused casual dining restaurants in the U.S.,” noted that the company generated $720 million in revenue last year.
“At a time when nearly all casual dining restaurants in the U.S. are struggling due to macro- and microeconomic factors, such as rising wages, increased competition and online third-party food delivery platforms, the Debtors have managed to continue to drive the profitability of their best performing stores in both their core and speciality brands,” he wrote.
Still, CraftWorks, like many other casual dining establishments, is facing numerous headwinds, including long-term leases, increased wages, adjustments to minimum wage laws and increased competition in both the restaurant and craft brewing industries.
In an effort to address those challenges, CraftWorks consulted with real estate advisor Hilco Real Estate LLC to reevaluate its footprint and renegotiate some of its leases. Ouf said the analysis led to the closure of “37 under performing and otherwise unprofitable stores in the weeks prior to filing” for Chapter 11. He added that a “small amount of additional closures” of under performing locations may still occur, although the “vast majority” of its 261 company-operated locations would remain open.
In the filing, Ouf credited ongoing internal initiatives to streamline operations and cut costs with helping save 3,700 full-time and 14,300 part-time jobs.
“Thus, unlike many other restaurants and retailers that filed for Chapter 11 protection without a plan to start fixing their business, the Debtors are already well underway with their turnaround strategy and are well-positioned to move forward in a positive direction,” he wrote.