Cosi (COSI) Files for Chapter 11 Bankruptcy
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Cosi, Inc. (NASDAQ: COSI), the fast-casual restaurant company, today announced that it and its subsidiaries filed voluntary Chapter 11 petitions in the United States Bankruptcy Court for the District of Massachusetts, initiating a process intended to preserve value and accommodate an orderly going-concern sale of Cosi’s business operations.
Cosi has obtained approximately $4 million in post-petition debtor-in-possession (DIP) financing, which, subject to Bankruptcy Court approval, will provide the Company with liquidity to maintain its operations in the ordinary course of business during the Chapter 11 process.
Prior to the Chapter 11 filing, Cosi entered into a non-binding term sheet with its lenders, AB Opportunity Fund LLC, AB Value Partners, L.P., and one or more entities affiliated with Milfam II L.P., pursuant to which the DIP lenders or their designees have proposed to purchase substantially all of Cosi’s assets and, subject to Bankruptcy Court approval, would serve as the “stalking horse” in a sale process under Section 363 of the Bankruptcy Code. The term sheet is non-binding and the transaction contemplated thereby is subject to, among other things, Cosi’s compliance with certain covenants. Cosi intends for such a sale, if completed, to ensure a smooth and swift transition of the business and operations to the DIP Lenders or their designees, which would be supported by a stronger balance sheet due to exiting underperforming locations and once company assets are sold free of any claims.
In accordance with the sale process under Section 363 of the Bankruptcy Code, notice of the proposed sale to the DIP lenders or their designees will be given to third parties and competing bids will be solicited. Cosi’s Board of Directors will manage the bidding process and evaluate the bids, in consultation with independent professional advisors and as overseen by the Bankruptcy Court.
Cosi’s Board of Directors unanimously determined that a sale in Chapter 11 is in the best interest of the Company and its creditors. The process allows Cosi to continue normal business operations during the Bankruptcy Court supervised sale process.
“We worked very hard to avoid this step,” said Mark Demilio, Cosi’s Chairman of the Board. “With the advice and support of outside advisors, we’ve explored multiple paths, including raising capital through equity and/or debt in either public or private transactions, selling the Company outside the bankruptcy process, selling certain assets of the Company, and other transactions to restructure the balance sheet or raise capital, while also focusing on attempting to improve sales, reduce costs, and exit underperforming locations. It’s become clear that, despite the extensive efforts by the Company, no such transactions are achievable at this time, that the Company cannot continue to operate in its current financial condition, and that the best alternative for the Company and its creditors would be to accomplish a sale through the bankruptcy process.”
Prior to the Chapter 11 filing, the Company closed 29 of its 74 Company-owned restaurants. The 31 franchised locations are unaffected. The plan outlines a fast-track process that will allow Cosi to emerge from the restructuring under new ownership and with an improved financial position and stronger brand.
“This was a difficult step, but it was necessary to address our liquidity issues," said Patrick Bennett, Sr., interim CEO of Cosi, Inc. “Cosi’s core business and franchise base remain intact, and we filed with the liquidity resources necessary to carry out the restructuring plan. We believe this process will allow the Company to right-size its balance sheet, reduce its debt, and focus on improving the business and stabilizing the brand,” Bennett stated.
Court filings and other information related to the restructuring proceedings are available on the Company’s website at www.getcosi.com.
Mirick, O’Connell, DeMallie & Loungee, LLP is serving as legal counsel, and the Company will appoint a Chief Restructuring Officer within 7-10 days. Patrick Bennett continues to serve as interim CEO, and Edward Schatz of The O’Connor Group, Inc. continues to serve as interim CFO.
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