Sbarro Emerges from Chapter 11 Without MidOcean or Ares

Sbarro, which is no longer backed by MidOcean Partners, has successfully come out of bankruptcy.

Late Monday, the quick service restaurant said it had emerged from Chapter 11 with significantly reduced debt and a $35 million capital infusion. “Our reorganization plan eliminates more than 70 percent of our debt, and provides access to $35 million in fresh capital from our new ownership group,” said Nicholas McGrane, Sbarro’s interim president and CEO, in a statement.

Melville, N.Y.-based Sbarro sells pizza, pastas and salads via more than 1000 restaurants in over 40 countries (476 are company-owned restaurants and 538 franchised restaurants, Buyouts reported in March). Many of its stores are located in malls which suffered during the economic downturn.

MidOcean Partners, a New York middle market PE firm, acquired Sbarro in 2007. The PE firm paid about $450 million for the pizza chain, which included at least $208 million in debt, Buyouts says. Ares Managment also owned some debt.

Sbarro, which was teetering under a near $400 million debt load, filed for Chapter 11 bankruptcy protection in April. The company did try to sell itself out of bankruptcy but those talks failed.

With its reorganization, Sbarro did manage to cut its debt to about $123.3 million from roughly $403.3 million prior to the bankruptcy, according to a Nov. 23 report from Standard & Poor’s Rating Services. But Sbarro remains highly leveraged because of all its operating lease commitments, says Mariola Borysiak, an S&P credit analyst.  “Leverage remains very high at over 8x [total debt to EBITDA],” she says.

The bankruptcy also wiped out MidOcean’s stake, Borysiak says. “MidOcean had a second lien facility and currently first lien lenders are the owners of the company,” she says.

Ares’s stake was also wiped out, a person familiar says.

Officials for Ares and MidOcean couldn’t be reached for comment.

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