Strategy

Cosi’s Cash Crisis Forces Bankruptcy Filing

The fast-casual chain has been unable to weather the restaurant industry downturn, with its same-store sales down 10% last month.
Matthew HellerSeptember 29, 2016
Cosi’s Cash Crisis Forces Bankruptcy Filing

Facing a cash flow crisis amid a downturn in the fast-casual dining sector, restaurant chain Cosi has filed for bankruptcy to initiate an “orderly” sale process.

The Boston-based company, known for its homemade flat bread, closed 29 stores of its 107 stores and laid off 450 employees between Monday and the filing of its Chapter 11 petition on Wednesday. It has assets of $31.24 million and debt of about $20 million, according to a court filing.

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Cosi’s lenders will provide a $4 million bankruptcy loan, subject to court approval, and have agreed to make a “stalking horse” bid for the chain, which will set a floor for bidding on its assets.

Cosi“We worked very hard to avoid this step,” Cosi Chairman Mark Demilio said in a news release, citing the company’s recent efforts to restructure its balance sheet, improve sales, reduce costs, and exit underperforming locations.

But it had become clear, he added, that “the company cannot continue to operate in its current financial condition, and that the best alternative for the company and its creditors would be to accomplish a sale through the bankruptcy process.”

Cosi owes a total of $7.5 million in principal to three senior lenders — AB Opportunity Fund, AB Value Partners, and an affiliate of Ohio investment firm Milfam. “I believe there are potential purchasers who will consider bidding against the [lenders’] stalking horse bid,” Interim CEO Patrick Bennett said in a court document.

The company in August terminated CEO R.J. Dourney after admitting it would not generate positive cash flow in the third quarter as it had anticipated.

Cosi’s restaurants feature an open-flame stone-hearth oven where the signature flatbread is made from scratch throughout the day. The company began restructuring efforts in late 2015 but according to Bennett, sales trends “began to deteriorate” in April — to the point that same-store sales were down 10% in August.

“The restaurant industry as a whole and the fast-casual sector in particular are experiencing decreasing sales trends,” Bennett noted.

Other casual eateries, including steakhouse chain Logan’s Roadhouse, have filed for bankruptcy in the past year.