Red Lobster Seeks Buyer to Avoid Bankruptcy amid Debt, Lease Struggles

Red Lobster, a struggling seafood chain, is currently seeking a buyer as it attempts to avoid filing for bankruptcy due to mounting debt and costly lease agreements. The company has also considered declaring bankruptcy in order to restructure its debts and break free from some of these leases, but they have simultaneously pursued potential buyers over the past few months. While at least one interested party emerged during this timeframe, a deal was ultimately not reached. Red Lobster’s predicament comes as debt levels have mounted following numerous long-term lease agreements and ownership changes spanning the last decade. The chain is currently looking for new owners in an unforgiving financial landscape that has become particularly difficult due to rising capital costs affecting major restaurant companies amid a slowdown across casual dining sectors over recent years, according to people familiar with the matter who spoke confidentially to CNBC. While it’s still uncertain how Red Lobster will resolve its woes ultimately – whether by finding an investor or through bankruptcy proceedings – sources have suggested that breaking lease agreements outside of a Chapter 11 filing would be challenging, given their complexity and lengthy nature. This news comes after Bloomberg reported last week on the chain’s potential foray into bankruptcy territory. Red Lobster has yet to comment officially on this matter as of publication time. The popular restaurant group – known for its cheddar bay biscuits and unlimited shrimp offerings – is currently facing a leadership crisis, with numerous high-ranking executives departing in recent years, making it difficult to implement necessary reforms within the organization. New CEO Jonathan Tibus joined the team just three months ago; prior experience for him has centered on turnaround operations involving struggling restaurant chains of smaller scale than Red Lobster’s sizeable operation (which boasts over 700 locations). The company was sold by Darden Restaurants to private equity firm Golden Gate Capital a decade back, following pressure from investors. Since then, the chain has faced its fair share of challenges; in 2016, Thai Union Group – which is also one of Red Lobster’s longstanding suppliers – acquired a minority stake in the business alongside an investor consortium known as Seafood Alliance. They later took full ownership following Golden Gate Capital’s exit earlier this year amidst the ongoing pandemic crisis. However, unlike many other restaurant companies that have struggled during these times, Red Lobster has so far avoided filing for bankruptcy; previous leader Kim Lopdrup stepped down two years back whilst longstanding head Kelli Valade took charge but only held onto her position until early last year when Horace Dawson replaced her. However, his tenure was short-lived and Tibus ultimately assumed the role in March 2022 – roughly six months ago now at this stage. Nevertheless, while leadership struggles continue to cause upheaval behind Red Lobster’s doors as various top tier managers rotate through positions of power over recent years – with former Denny’s CEO Kelli Valade among the most high-profile departures in that timeframe – industry analysts also contend with significant difficulties presented by casual dining companies in today’s business environment, where chains such as Red Lobster are facing intensifying competition from fast-casual rivals like Panera Bread and Chipotle Mexican Grill. Furthermore, the pandemic has hit full service restaurants particularly hard over recent years – a situation that was exacerbated by some self-inflicted wounds for Red Lobster itself in 2021 when it revamped its ‘endless shrimp’ promotion to boost sales during the second half of last year. However, this offer ended up pressuring profits as diners sought out cheap deals instead – a problem that ultimately resulted in $11 million and then subsequently $12.5m losses for Red Lobster during fiscal Q3 & 4 respectively.