Chuck E. Cheese Parent Plans Lender Talks In Ch. 11

By Vince Sullivan
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Law360 (June 26, 2020, 7:41 PM EDT) -- The parent company of family pizza-arcade chain Chuck E. Cheese told a Texas bankruptcy judge Friday that it intends to use the protections afforded by Chapter 11 to commence negotiations with its lenders and landlords while considering numerous financing and purchase offers.

During a first-day hearing conducted via phone and videoconference, debtor attorney Matthew S. Barr of Weil Gotshal & Manges LLP said CEC Entertainment Inc. has $1 billion in debt and needs time to discuss options going forward with case stakeholders after the coronavirus pandemic drove business down by 90%.

"We are going to use the first 30 days of the case to really get with our constituents and really try to come up with what the right plan for the business going forward is, now that we have that reprieve from our landlords," Barr said.

After the company was forced to close all of its more than 700 Chuck E. Cheese and Peter Piper Pizza locations in March, Barr said landlords were initially open to granting rent concessions. But their patience wore thin as the pandemic and shutdowns stretch into May in many parts of the country, Barr said.

Some landlords padlocked doors or sought to terminate leases, and more than 50 began eviction proceedings due to late rent payments, he said. The risks posed by the landlords' actions forced CEC to seek Chapter 11 before it could reach terms on a restructuring plan with lenders and third parties that expressed interest in participating in any kind of financing or acquisition transaction, according to Barr.

U.S. Bankruptcy Judge Marvin Isgur approved a typical slate of first-day motions Friday, including a request from the debtor to use the cash collateral of its lenders to fund its operations and case expenses. He gave oral approval to that motion so that the debtor could pay some of its bills as soon as Saturday.

The judge said the case was an important one to him because Chuck E. Cheese is a staple of American life, and that he would do whatever he could to help the business survive.

"These debtors really play a role in the fabric of the country, and families did celebrate birthdays here and I don't take that lightly. It's going to be my intent to work hard to try and bring the parties into consensus and agreement so these companies can be saved," Judge Isgur said. "Let's not let the pandemic destroy these companies if we can avoid it."

CEC filed for Chapter 11 protection Thursday in Texas bankruptcy court, saying the financial strain of having most of its locations still closed due to the coronavirus pandemic could not be withstood any longer.

The debtor and its affiliates operate 555 Chuck E. Cheese and Peter Piper Pizza locations and franchise another 186 in 47 states and 16 countries, according to court filings. In 2019, the company brought in more than $900 million in revenue, but the shuttering of its restaurants and arcades eliminated more 90% of its revenue this year.

In response to the shutdowns, CEC was forced to furlough many of its 15,000 employees and employ drastic cost-cutting measures to preserve its liquidity, the company said. It kept some of its kitchens open to conduct food takeout operations and even spun up a pizza-delivery option at some locations, but those efforts were not nearly enough to cover the lost revenue.

It comes to court with a first-lien term loan with $760 million outstanding, a first-lien revolving credit facility with $114 million outstanding and $215 million in unsecured note debt, court filings said.

CEC is represented by Alfredo R. Perez, Clifford Carlson, Matthew S. Barr, Ryan Preston Dahl and Scott Bowling of Weil Gotshal & Manges LLP.

The case is In re: CEC Entertainment Inc. et al., case number 4:20-bk-33163, in the U.S. Bankruptcy Court for the Southern District of Texas.

--Editing by Alanna Weissman.

For a reprint of this article, please contact reprints@law360.com.

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