Law360 (October 26, 2020, 1:16 PM EDT) -- Rubio's Restaurants Inc., which operates roughly 170 Rubio's Coastal Grill locations, hit Chapter 11 in Delaware on Monday with a prepackaged plan to restructure its roughly $82 million in debt and citing strain due to the coronavirus pandemic as a reason for its trip into bankruptcy.
Rubio's Restaurants, the operator of approximately 170 Rubio's Coastal Grill locations, filed for Chapter 11 bankruptcy in Delaware on Monday. (Photo by John Greim/LightRocket via Getty Images)
"Management could not have predicted the scope, scale and impact of the government-ordered shutdowns, which effectively altered the viability of the debtors' business model overnight. Given that on-premises dining had traditionally accounted for approximately 47% of the debtors' sales, the shutdowns delivered a sudden and significant blow to the debtors' liquidity position," Kibler said.
Although Rubio's "rapidly transitioned from an operating model based on a mix of limited-service in-store dining, takeout and delivery to an operating model based solely on takeout and delivery or to a delivery-only operating model," financial damage had been done, she said.
"COVID-19 has had a significant impact on Rubio's, like most businesses, and I'm proud of how we have responded to the challenge," Rubio's co-founder Ralph Rubio said in a statement. "Our investments in critical digital technologies in 2019, including online ordering, a mobile app, a new loyalty program and Rubio's delivery, allowed us to pivot swiftly under varying state and county restrictions."
In response to the financial woes caused by the pandemic, Rubio's permanently closed "underperforming" locations in Colorado and Florida and 14 other restaurants elsewhere, Kibler's declaration said.
"The debtors have identified a number of other stores with unsustainable profitability levels that they believe can remain open only if the properties' landlords agree to satisfactory concessions," Kibler said. "The degree of success of landlord negotiations will determine whether additional closures are necessary."
Rubio's, which has locations in California, Arizona and Nevada and is known for its fish tacos, and affiliates filed for Chapter 11 with an agreement in place with Golub Capital Markets LLC for certain prepetition lenders to provide up to $8 million in debtor-in-possession financing to fund operations as the company moves forward with its prepackaged debt-for-equity Chapter 11 plan.
Under the plan, roughly $55 million of secured loan claims will be converted into an exit facility and equity in the reorganized company and about $18 million of other secured lender claims will be treated as general unsecured claims.
"The prepackaged plan provides for a comprehensive restructuring of the debtors' prepetition obligations, preserves the going-concern value of the debtors' business, maximizes all creditor recoveries, and protects the jobs of the debtors' invaluable employees, including management," the declaration said.
The company employs more than 3,400 workers at its restaurants and corporate headquarters in California, the declaration said. To fund payroll during the pandemic, Rubio's received a $10 million loan under the Paycheck Protection Program included in the Coronavirus Aid, Relief and Economic Security Act. It has requested forgiveness of that loan, Kibler said.
In addition to the PPP loan, Rubio's debt includes $68.3 million owed on a term loan facility and $4 million owed on a revolving credit facility, both administered by Golub affiliates.
Rubio's secured a deal with private equity firm Mill Road Capital LP for a $6 million equity investment to provide additional liquidity upon finalization of the Chapter 11 plan, according to the declaration.
The case has been assigned to U.S. Bankruptcy Judge Mary F. Walrath, according to court records. An initial hearing is scheduled for Tuesday.
The company has already filed its Chapter 11 plan and disclosure statement with the court. According to filings, the debtors aim to have the Chapter 11 plan confirmed by the end of the year.
"This plan will strengthen our finances and allow us to continue to serve our loyal guests and drive our business forward," Rubio's President and CEO Marc Simon said in a statement.
Rubio's is represented by M. Blake Cleary, Edmon L. Morton, Ryan M. Bartley and Betsy L. Feldman of Young Conaway Stargatt & Taylor LLP and Gregg M. Galardi, Cristine Pirro Schwarzman, Andrew E. Glantz and Mark Maciuch of Ropes & Gray LLP.
The case is In re: Rubio's Restaurants Inc., case 1:20-bk-12688, in the U.S. Bankruptcy Court for the District of Delaware.
--Editing by Marygrace Murphy.
Update: This story has been updated with additional information.
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