Red Lobster is reportedly weighing a possible Chapter 11 bankruptcy filing in order to restructure its mounting debt.
The seafood restaurant chain — which has 649 locations nationwide — has sought advice from law firm King & Spalding on how to shed some long-term contracts and renegotiate a chunk of its leases, people with knowledge of the matter told Bloomberg.
Red Lobster’s funds have taken a hit in recent months by strenuous leases and rising labor costs, among other issues, said the people, who spoke on condition of anonymity, per Bloomberg.
A final decision has yet to be made about the bankruptcy filing, and restructuring discussions are still underway between Red Lobster, its owner Thai Union Group Plc, key lender Fortress Investment Group and King & Spalding.
Should the casual chain file for Chapter 11, it would be able to keep serving up its popular cheddar bay biscuits and affordable, seafood-forward menu while it works on a debt-cutting plan, according to Bloomberg.
Thai Union Group, which previously owned just 25% of the company, took control of Orlando-based Red Lobster in 2021 after buying Golden Gate Capital’s stake.
However, Thai Union Group — best known for its exports of canned and frozen seafood — wrote down its share of Red Lobster early this year.
The firm said in a statement on its website at the time that the restaurant’s “ongoing financial requirements no longer align with Thai Union’s capital allocation priorities.”
“The combination of COVID-19 pandemic, sustained industry headwinds, higher interest rates and rising material and labor costs have impacted Red Lobster, resulting in prolonged negative financial contributions to Thai Union and its shareholders,” added Thai Union Group chief Thiraphong Chansiri.
Thai Union Group also noted that it recorded a share loss of roughly $19 million in the first nine months of 2023 from Red Lobster alone.
As a result, the Thailand-based company included a $530 million non-cash impairment charge in its fourth-quarter earnings report for its investment in Red Lobster.
Representatives for Thai Union Group and Red Lobster did not immediately respond to The Post’s request for comment.
Red Lobster is not the only chain that’s been struggling with surging labor costs.
California franchisee owners have been especially squeezed since April 1, when a new wage law took effect for fast-food chains — or eateries with at least 60 outposts nationwide where diners pay before eating and there is either no or limited table service.
Franchise owners in The Golden State must now pay their workers at least $20 per hour, which is 25% above the state’s general minimum pay.
The wage hike has restaurant owners lifting menu prices, delaying renovations and reconsidering operating hours as a means to offset increased labor costs.
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Even without the new minimum wage requirements, many restauranteurs have been forced to push prices higher simply to combat inflation, which rose to an unexpectedly high 3.5% in March.
An increase in food costs was among the major culprits that pushed the latest Consumer Price Index — which tracks the changes in the costs of everyday goods and services — higher, according to government data.
