By Vince Sullivan

Law360 (March 23, 2020, 11:52 AM EDT ) The parent company of restaurant chain Logan's Roadhouse told a Delaware bankruptcy judge the negative impact of the COVID-19 outbreak on its business led to a default under its $138 million post-petition loan and a complete cessation of operations, forcing the company to ask for new procedures to limit its bankruptcy costs.

In its filing late Friday, CraftWorks Parent LLC said it was informed of the termination of its debtor-in-possession financing March 18 and immediately shut down its 261 restaurant location and began the process of "mothballing" its operations.

"The debtors hope they will be able to restart their operations at some point in the future, but there are many preconditions to a restart, including the obtaining of financing, the hiring of staff, and the ability to create a coherent and profitable business plan, among other factors," the company said. "The shutdown could persist for a prolonged period of time, if not permanently."

CraftWorks asked the court for a breathing spell of 60 days in anticipation that creditors may begin taking action against the debtor's estate. With the support of the official committee of unsecured creditors, the company asked the court to approve temporary procedures that will limit the amount and type of pleadings allowed to be filed in the case to keep case expenses at a minimum.

Specifically, the debtor is asking any case party to confer with CraftWorks counsel before filing any pleading, complaint or notice on the court docket and to make a good-faith effort to reach a consensual resolution of the issue within five days, according to the motion. If no agreement comes to fruition in that time period, the procedures would require the moving party to inform the court of the issue in a letter filed on the docket that is no longer than three pages. Responses from the debtor and any other party, also limited to three pages, will be due in five days.

After those submissions are made, the court can decide whether a hearing is necessary or if the moving party can file their pleadings in accordance with normal procedures. To the extent any hearings are necessary, the debtor is asking that they be telephonic only.

The motion is seeking a 30-day implementation of the new procedures, with an option for a 30-day extension.

"This is the only path that potentially leads to a survival of the debtors' business, the reemployment of some of the debtors' approximately 18,000 employees, and re-occupancy of the debtors' 261 restaurants," the motion said. "In order to have a chance, however, the debtors need to drastically limit all expenses, including professional fees."

The company filed for Chapter 11 protection in early March, listing $235 million in debt and carrying a stalking horse bid into court from first-lien secured lender Fortress Credit Co. LLC. Fortress is also the lender under the $23 million new money postpetition loan, which was also expected to roll up $115 million in existing secured debt held by Fortress.

The debtor owns 261 restaurants under the Logan's Roadhouse, Old Chicago Pizza & Taproom and Rock Bottom Restaurant and Brewery brands, among others, and franchises another 77. Prior to the bankruptcy filing, CraftWorks shuttered 37 underperforming restaurants, according to court filings.

It was driven to bankruptcy by its overleveraged balance sheet, according to CEO Hazem Ouf, who said in a first-day declaration that a November 2018 acquisition of the Logan's chain strained its financial position. The balance sheet was further eroded by rising labor costs, increased competition in the casual dining industry and the drag of unprofitable locations with high rent obligations.

When the COVID-19 outbreak reached the United States, governors in many states where CraftWorks operates restaurants enforced closures of nonessential businesses, including the sit-down restaurants the debtor operates, to stem the spread of the disease.

The closures essentially led to the evaporation of all of CraftWorks' revenue and the default on its DIP loan, according to the motion.

Ouf said the business reported more than $720 million in revenues in 2019, serving more than 65 million meals and booking about $31.5 million in adjusted earnings before taxes and other routine deductions.

By early this year, however, the company was unable to make required interest payments on a first-lien credit agreement dating to the Logan Roadhouse chain acquisition. Under that agreement, Fortress is the administrative agent to lenders who are owed $128.7 million under a secured loan and $3 million under revolving loans, as well as $4.7 million in outstanding letters of credit.

Additionally, about $35 million is owed under a second-lien loan administered by Wells Fargo National Bank and $30 million in payment-in-kind notes issued at the time of the Roadhouse acquisition in 2018. A separate $34 million, unsecured, no-interest note remains outstanding as well, administered by Wells Fargo.

The chain traces its beginnings to 2010, when affiliates of Centerbridge Partners LP acquired and merged the Rock Bottom and Gordon Biersch restaurant brands to form CraftWorks Restaurants and Breweries. The venture later acquired other brands, in a deal capped with the 2018 Logan's Roadhouse merger.

Logan's was by that time two years past confirmation of a separate Delaware bankruptcy that wiped away about $300 million in debt and streamlined its national holdings.

Craftworks Parent LLC and its affiliates are represented by Domenic E. Pacitti, Michael W. Yurkewicz and Morton R. Branzburg of Klehr Harrison Harvey Branzburg LLP and Steven J. Reisman, Bryan M. Kotliar and Peter A. Siddiqui of Katten Muchin Rosenman LLP.

The case is In re: Craftworks Parent LLC et al., case number 1:20-bk-10475, in the U.S. Bankruptcy Court for the District of Delaware.

--Additional reporting by Jeff Montgomery. Editing by Marygrace Murphy.

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