Friendly’s Ice Cream Corporation, which is known for their “Happy Ending” sundaes, is filing for bankruptcy. The ice cream parlor chain operates more than 400 restaurants where they serve not only ice cream sundaes, but also hamburgers, sandwiches, and pancakes. Friendly’s plans to close 63 of it’s under performing restaurant leaving 424 open. A slow economy, climbing cream prices, and high rent have been listed as the main reasons behind the restaurant’s financial troubles. Experts say the bottom line is that many Americans have cut back on dining out to save money. The chain employs 10,000 people; over 1,200 jobs have already been lost.
“We have made a lot of progress, but our company continued to face significant financial challenges. This was exacerbated by the weak economy and rapidly rising commodity costs that have impacted the entire restaurant industry,” Friendly’s Chief Executive Harsha V. Agadi said in a statement.
Friendly’s has secured more than $71 million of what is known as debtor-in-possession financing. This money will keep the chain afloat during their bankruptcy proceedings. The financing has been secured by Sun Capital Partners Incorporated, which remains subject to bankruptcy court approval. As part of Friendly’s bankruptcy, they will enter into a sale process where Sun Capital who is also a current creditor to the ice cream chain, would buy-out the chain. Sun Capital is offering to provide cash to pay off the full amount Friendly’s owes under a senior secured credit facility. They are also willing to forgive a portion ($267.7 million) of subordinated secured promissory-note debt, and what it will be owed under the proposed bankruptcy loan.
“It’s likely that Sun believes that the crisis in consumer confidence which has reduced revenues in the casual dining sector cannot continue indefinitely.” Harsha Agadi, Friendly’s chief executive, said.
Friendly’s auction rules include that any rival bidders must offer at least $122.6 million in cash in order to challenge Sun Capital at auction. The restaurant chain is hoping for a November 24th deadline for bids, and a December 1st auction. Friendly’s reported assets and debts both fall into the range of $100 million to $500 million in its Chapter 11 petition. Harsha Agadi also stated that bankruptcy would “quickly improve our financial position and ensure we have the resources to build a better and stronger Friendly’s.” He believes that “the strategic decision to pursue a financial restructuring will allow us to proactively and quickly improve our financial position.”
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