Ice cream and restaurant chain Friendly’s succumbed to Chapter 11 bankruptcy on Wednesday as the iconic East Coast company was squeezed by the stagnant U.S. economy.
As part of a quick financial restructuring plan, Wilbraham, Mass-based Friendly’s Ice Cream Corp. said it will shut down 63 underperforming restaurants, mostly in New England.
However, Friendly’s, which was founded in 1935 during the Great Depression, said it will keep open 424 of its restaurants during its financial restructuring and leave its manufacturing and distribution operations intact.
Friendly’s, which is mired with $250 million in debt, also said it plans to enter into a 363 sale process with an affiliate of private-equity owner Sun Capital. The Boca Raton, Fla.-based buyout shop will serve as a lead, or “stalking horse”, bidder to facilitate a quicker turnaround process.
"Thanks to our dedicated employees and franchisees, we have made a lot of progress, but our company continued to face significant financial challenges,” CEO Harsha Agadi said in a statement. “This was exacerbated by the weak economy and rapidly rising commodity costs that have impacted the entire restaurant industry.”
Friendly’s said it has secured about $70 million in debtor-in-possession, or DIP, financing to keep it afloat during bankruptcy and meet ongoing obligations. It’s not clear where it received the financing, but late last week The Wall Street Journal reported the company was in talks with Wells Fargo (NYSE:WFC) about DIP financing.
With more than 10,000 employees, Friendly’s owns about 500 restaurants in 15 states up and down the East Coast of the U.S. The company also sells ice cream and other desserts via 4,000 supermarkets.
Friendly’s disclosed in its statement which stores it plans to close, including 30 in its home state of Massachusetts and seven in neighboring Connecticut.
Like many of its peers, the restaurant chain has been hurt by the economic malaise in the U.S., which has caused many consumers to avoid spending as much discretionary income as they had been accustomed to.
The Commerce Department said last week U.S. consumer spending inched up just 0.7% in the second quarter -- the weakest rise since the fourth quarter of 2009.
“The strategic decision to pursue a financial restructuring will allow us to proactively and quickly improve our financial position and ensure we have the resources to build a better and stronger Friendly's for our loyal guests, retail customers, suppliers and other business partners,” Agadi said.
A number of other companies have also been reportedly considering Chapter 11 filings, including American Airlines parent AMR Corp. (NYSE:AMR) and imaging company Eastman Kodak (NYSE:EK). Both of those well-known companies have denied the bankruptcy talk.