New owner nears purchase of Red Lobster after chain announced bankruptcy and closures

Two months after filing for Chapter 11 bankruptcy , Red Lobster could soon be changing hands.

A stalking horse bidder listed as RL Purchaser LLC − a newly formed entity organized and controlled by Fortress Credit Corporation − is set to be the chain's new owner, according to court documents filed Monday in the Middle District of Florida in Orlando.

RL Purchaser LLC, which consists of Red Lobster's lenders, bid $376 million to acquire the company's remaining assets, according to the Orlando Business Journal.

Red Lobster filed for bankruptcy on May 19 after closing dozens of locations and announcing that it intended to "drive operational improvements" by simplifying the business. Documents later filed in federal court revealed that the bankruptcy was primarily due to significant debt, a carousel of CEOs, an all-you-can-eat shrimp fiasco and a 30% drop in guests since 2019.

Red Lobster would mark Fortress' latest acquisition of a company in bankruptcy, following purchases of Vice Media and Alamo Drafthouse, which was later sold to Sony Pictures Entertainment, Reuters reported.

USA TODAY contacted Red Lobster and its attorneys on Tuesday for comment but have not received a response. Fortress declined to comment on Tuesday.

No bidders made play to buy Red Lobster following Chapter 11 bankruptcy filing

The popular seafood restaurant chain was initially going to be sold more traditionally, but no bidders came forward before the company's July 18 deadline, so the auction was canceled and the stalking horse bidder won by default, the Orlando Business Journal reported. Red Lobster's lack of bidders may have been apparent because the company indicated it would be going away from a traditional asset sale during a July 10 hearing.

“So, the idea is to … maintain operational continuity and potentially reduce the costs and complexities associated with a traditional asset sale,” attorney Jeffrey Dutson of King & Spalding LLP, representing Red Lobster and appearing via Zoom during the hearing, per the Orlando Business Journal.

The auction was scheduled for July 23, but with it being canceled, RL Purchaser LLC is now the "successful bidder." A hearing is scheduled for July 29 for the approval of the sale of the assets, the federal court documents say.

What is a stalking horse bidder?

A stalking horse bidder is "an initial bid on the assets of a bankrupt company," according to Investopedia .

The bankrupt company, which in this case is Red Lobster, chooses an entity from a pool of bidders who will make the first bid on the firm’s remaining assets, the financial media website said. The stalking horse sets the low-end bidding bar so that other bidders cannot underbid the purchase price.

What does the sale mean for Red Lobster?

The sale of Red Lobster means the company should have more flexibility to reorganize. The chain will look to make its marketing and supply chain management more efficient and enhance customer experience and operational effectiveness, Red Lobster CEO Jonathan Tibus said in a 124-page bankruptcy document.

Tibus detailed a "three-prong strategic priority plan," which includes making sure Red Lobster is a "great place to work" by focusing on employee culture and retention, continuing to provide "consistent experiences and excellent customer service," and reducing the company's cost structure without compromising quality.

After closing and vacating dozens of stores, Red Lobster is continuing to identify and eliminate nonproductive spending across all departments, Tibus said. The chain tried relocating the employees of the "financially burdensome" stores to nearby locations and adjusting midlevel management, according to the CEO.

Following the sale, it is unclear if Tibus' plan will come to fruition or if he will even serve as CEO going forward.

Contributing: Reuters

This article originally appeared on USA TODAY: New owner nears purchase of Red Lobster after chain announced bankruptcy and closures