A massive restaurant now files an unexpected bankruptcy in Texas after the operator struggled to keep the chain afloat.
A TGI Fridays operator in Brazil lost its rights to operate Starbucks and Subway restaurants in the country leading it to file for bankruptcy in the U.S. in a bid to protect its rights to the TGI Fridays brand.
SouthRock Capital, which operated hundreds of restaurants in the country, including Eataly units and outlets in airports and along highways, declared Chapter 15 bankruptcy in Texas this week.
Chapter 15 involves foreign entities seeking to protect assets in the U.S.
The company had aggressively expanded U.S. brands in Brazil, with nearly 1,600 Subway locations and 187 Starbucks units in addition to four TGI Fridays and a half-dozen Eataly locations plus 25 airport and six highway restaurants.
According to court filings, the pandemic hurt the company’s business, as did “the persistent instability of the Brazilian economy.”
SouthRock’s revenues decreased 95% in 2020 alone and 70% in 2021, according to court documents.
The company raised capital largely through debt, borrowing some $57 million through various investment funds and banks.
A debt default in September last year led to the termination of the Starbucks agreement and caused lenders to call some $26.7 million in loans, according to court documents.
Subway ended its relationship with SouthRock in November.
SouthRock has been working to reorganize its debts in Brazil, after some creditors “started engaging in aggressive loan recovery practices” such as enforcement proceedings and targeting the company’s assets and bank accounts.
The company says it expects to restructure in Brazil and needs the U.S. bankruptcy process to protect its assets in the U.S. “from any ongoing and potential adverse action of creditors or other parties-in-interest,” according to court filings.
In particular, according to court filings, SouthRock wants to continue operating TGI Fridays in Brazil during and after reorganization.
The company also wants to stop potential litigation against the company and its founder, Kenneth Pope.
SouthRock has accumulated more than $200 million worth of losses since 2020, according to court documents.
The company’s liabilities include $23.3 million in secured debts and nearly $22 million worth of unpaid royalties.
The operator’s challenges come as many brands have aggressively pushed development into international markets, typically using local companies to operate restaurants.
Many large-scale brands, and even mid-sized and smaller concepts, have been working to open units outside the U.S, reports Restaurant Business.
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Also Read: Another Mall Clothing Retailer Now At High Risk of Bankruptcy
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An essential company now files a surprising bankruptcy after miscalculating demand for its inventory after the Covid-19 pandemic.
Supply Source Enterprises, a leading provider of branded and private label cleaning products and personal protective equipment, on May 21 filed for Chapter 11 protection to seek a sale of its assets.
Supply Source brands include The Safety Zone and Impact Products.
The Guilford, Connecticut debtor listed $50 million to $100 million in assets in its petition and $180 million in funded debt, which includes $80 million owed on a term loan credit facility, $60 million owed on an asset-based loan, and about $40 million in unsecured debt.
Before the Covid-19 pandemic, which generated huge demand for cleaning supplies and personal protective equipment in 2020, Supply Source had been consistently profitable with stable single-digit growth, according to a declaration from the debtor’s Chief Restructuring Officer Thomas Studebaker.
Once the pandemic hit in 2020, the debtor had substantial growth due to high demand for safety, hygiene and sanitation products
The debtor reported adjusted Ebitda of $93 million in 2020 which was nearly a 300% increase over the previous year.
However, the company’s financial performance deteriorated in subsequent years.
Based on the unprecedented demand in 2020, the company commissioned an industry study in early 2021 that concluded that the Covid-19 pandemic would fundamentally change the cleaning supplies and protective equipment industry and market for its products.
The study also estimated that the company’s Covid-related growth would likely be sustained through 2024.
In contemplation of continued customer demand at elevated prices, based on the study’s data, the debtor increased purchases of inventory even though the costs were higher due to supply chain constraints during the pandemic.
Despite the study’s assurance that growth would be sustained for years, the pandemic’s positive effect on the market faded by the end of 2021 and demand for PPE decreased to normal rates, reports TheStreet.
The reduction in demand led to large amounts of excess inventory that the company could not sell in the same quantities and prices.
The excess inventory forced the debtor to secure additional storage space, which increased storage costs.
These factors tightened the company’s liquidity and led to a decline in annual revenue in 2023 by 26% from 2022, resulting in a negative 2023 Ebitda of $13 million.
The debtor’s liquidity issues led to it being overdrawn on its asset-based loan facility by $30 million.
The ABL lender in February 2024 swept the debtor’s bank accounts, further impacting the company’s financial distress.
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Also Read: This Massive Mall Retailer Is Now Closing In California
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