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Law360 (October 7, 2020, 1:27 PM EDT) -- Casual dining chain Ruby Tuesday hit Chapter 11 on Wednesday in Delaware, saying it needed the protection of bankruptcy to address financial problems caused by the COVID-19 outbreak and associated restaurant closings.
In a statement announcing the filing, Ruby Tuesday CEO Shawn Lederman said the chain's restaurants would continue normal operations as it pursues a restructuring of its balance sheet.
"This announcement does not mean 'Goodbye, Ruby Tuesday,'" Lederman said. "Today's actions will allow us an opportunity to reposition the company for long-term stability as we recover from the unprecedented impact of COVID-19."
With the chain already struggling due to consumer shifts away from casual dining, the COVID-19 pandemic led to the temporary closure of all but one of its 421 restaurants due to local and state business restrictions and the furlough of nearly all of its 7,300 employees, according to a first-day declaration filed by Lederman. By April, Ruby Tuesday had permanently closed 71 locations, leaving it with 350 restaurants, many of which remain under COVID-19 restrictions. As of the petition date, Lederman said 236 locations have reopened and are offering full-service dining options, some with limited capacity rules in place.
Ruby Tuesday does not intend to reopen 185 of its restaurants that were closed during the pandemic, the declaration said.
While the pandemic eliminated almost 90% of the debtor's business almost overnight, significant increases in its to-go and third-party delivery options have served as a bright spot for the chain. Lederman said the to-go business revenue jumped by 93% during the pandemic, while its third-party delivery revenue increased by 450%.
"These initiatives are expected to contribute to a recovery as economies reopen and the company leaves behind the impact of COVID-19," the declaration said.
To help navigate the uncertain financial landscape, Ruby Tuesday said it negotiated deferments for some obligations, including rent, and was able to secure a $10 million forgivable loan from the Small Business Administration as part of the Coronavirus Aid, Relief and Economic Stability Act. The rent relief included $1.5 million in rent abatement, $5.1 million in rent deferrals and $17.3 million in savings from terminated leases, the declaration said.
Through the bankruptcy process, Ruby Tuesday intends to implement a debt-for-equity swap with secured lenders owed about $42 million. The company also carried $18.8 million in trade claims owed to vendors, landlords, employees and utility providers, according to the declaration.
The Chapter 11 case has been assigned to U.S. Bankruptcy Judge John T. Dorsey.
The company is the latest in a long line of dining chains to seek protection under the bankruptcy code, with COVID-19 directly pushing other players like California Pizza Kitchen, PizzaExpress, Chuck E. Cheese and large owners of franchised restaurants under the Pizza Hut and Wendy's banner. The pandemic comes on the heels of industry trouble for similar chains as consumer preferences shift from casual dining to fast food and fast-casual options. This shift saw restaurants including Perkins, Marie Callender's, Village Inn and Baker's Square fall into Chapter 11.
Ruby Tuesday is represented by Richard M. Pachulski, Malhar S. Pagay, James E. O'Neill and Victoria A. Newmark of Pachulski Stang Ziehl & Jones LLP.
The case is In re: RTI Holding Company LLC et al., case number 20-12456, in the U.S. Bankruptcy Court for the District of Delaware.
--Editing by Marygrace Murphy.
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