Dive Brief:
- On the Border Mexican Grill & Cantina filed for Chapter 11 bankruptcy protections this week, according to court documents.
- The casual chain, which had 60 company-operated units at the time of its petition date, listed estimated assets and estimated liabilities between $10 million and $50 million. It has over $19 million in prepetition funded debt, court records show.
- The chain’s bankruptcy was precipitated by the difficult macroeconomic environment, labor shortages, underperforming restaurants and creditor enforcement actions, among other factors, OTB Holdings Chief Restructuring Officer Jonathan Tibus said in first day pleadings.
Dive Insight:
Much like other chains that have declared bankruptcy in recent years, including Red Lobster, TGI Fridays and Buca di Beppo, On the Border grew significantly in the 1990s and early 2000s when casual dining was particularly popular. That growth was then reversed by recent economic trends that led to a decline in dining out at full-service chain restaurants.
On the Border opened its first location in 1982 in Dallas, Texas, serving mesquite-grilled fajitas, margaritas and endless chips and salsa, said Tibus, who served as CEO of Red Lobster as that chain prepared for its Chapter 11 filing. On the Border grew its store base domestically and internationally, and in 1994, Brinker International acquired the chain.
By 2001, the chain had 100 domestic locations and in 2007 it expanded into South Korea with several franchised units, Tibus said. In 2010, Brinker sold the 160-unit chain to Golden Gate Capital, which then sold the company in 2014 to Border Holdings, an affiliate of private equity firm Argonne Capital Group. In 2020, Utz acquired the rights to manufacture chips and dips using the On The Border brand name.
The Mexican food chain has not been able to escape years of macroeconomic factors that negatively impacted its restaurant business, including consumers pulling back on restaurant consumption as menu prices rose faster than grocery costs, Tibus said. Additionally, wages have outpaced the company’s ability to increase prices, adding additional pressures on margins.
“The Debtors have struggled in the last year to recruit and maintain a complete workforce, which diminishes the Debtors’ ability to operate efficiently,” Tibus said.
On Feb. 24, the chain closed 40 underperforming locations that had rent costs and/or financial performance that was deemed to be “financially burdensome to the rest of the Company,” Tibus said. Last year, the chain spent over $25 million on leases with $11.9 million paid in leases on underperforming locations, which strained the company’s liquidity.
Following the company’s rapid loss of liquidity in the months leading to its Chapter 11 filing, the chain had to “institute holds on vendor payments and rent payments to maintain cash.” That led vendors and landlords to cut off service, withhold goods and repossess leased premises.
“This resulted in the Company losing stores, additional operational challenges, and a severe liquidity crisis,” Tibus said.
The company expects its bridge lender, CrossFirst, to also serve as the debtor-in-posession lender and enter into a stalking horse asset purchase agreement. On the Border will also seek higher or better bids through the marketing process. Bidding procedures are expected to begin in early April.
