Dive Brief:

• California Pizza Kitchen filed for Chapter 11 bankruptcy Thursday as part of an agreement with its first lien lenders to equitize the vast majority of the company’s long-term debt, according to a press release.
• The deal with its lenders will allow the restaurant to close unprofitable locations and reduce long-term debt. The restaurant estimates that the agreement will allow the company to emerge from Chapter 11 in less than three months. 
• The company will receive about $46.8 million in new money debtor-in-possession financing that will enable it to continue operating its restaurants, pay its vendors and employees, and maintain ongoing commitments to stakeholders. CPK has between $500 million and $1 billion estimated liabilities, according to a court filing. 

Dive Insight:

California Pizza Kitchen is the latest restaurant group that was struggling prior to the pandemic to file Chapter 11 bankruptcy months later. About two-thirds of restaurants are currently at risk of bankruptcy, according to an Aaron Allen & Associates report. Since the start of the pandemic, CEC Entertainment, FoodFirst Global Restaurants, Sustainable Restaurant Holdings and other casual chains have filed for bankruptcy. 

Chapter 11 can lead to better things, however. For example, FoodFirst Global Restaurants, which operates Brio Italian Mediterranean and Bravo Fresh Italian restaurants, found a buyer in Earl Enterprises, which plans to boost advertising and reverse menu changes that ultimately led to its decline, according to Nation’s Restaurant News.

While CPK isn’t looking for a buyer, its reemergence from bankruptcy is expected to help the company reduce its debt, which only grew over the last decade. Prior to COVID-19, CPK was already struggling, loaded with debt from its private equity owner Golden Gate Capital, which bought the full-service pizza chain in 2011, according to the Wall Street Journal. Moody’s said last year that it was among the companies most likely to default.

In April, the full-service pizza chain, which has 240 restaurants, was reportedly looking into restructuring its debt to try and avoid a bankruptcy filing, according to The Wall Street Journal. The company was even in the early stages of the sales process, receiving five bids earlier this year, but coronavirus stalled these plans. 

For CPK, the coronavirus only added to its woes, leading to dining room closures at all of its California locations, where most of its units are based, following statewide mandates. Dining room operations have resumed at its other locations across the country, according to its website, but it is only allowing patio service in the Golden State, according to its website. 

"The unprecedented impact of COVID-19 on our operations certainly created additional challenges, but this agreement from our lenders demonstrates their commitment to CPK’s viability as an ongoing business," Jim Hyatt, CEO of CPK, said in the press release.