Red Lobster is facing the “most challenging time” in its history during the coronavirus pandemic, CEO Kim Lopdrup said, at the same time outside analysts worry about a looming $355 million loan the company has due next summer.
The privately held seafood chain of more than 700 restaurants has a $380 million term loan, with more than $355 million outstanding, reaching maturity next July, according to a June report from Moody’s, which earlier in the year cut the company’s credit rating to Caa1, defined as “poor.”
Upcoming financial events mean it is “critical to repair the balance sheet,” said John Gordon, a San Diego-based restaurant analyst.
“Most of the casual dining restaurant operations have had a very difficult time and most will have a difficult time for some considerable time going forward,” Gordon said. “I hope that Red Lobster is doubling down wherever and however they can in terms of takeout and delivery business.”
Lopdrup said in a statement this is “the most challenging time Red Lobster has faced in our 52 years of operation.”
He noted the mandatory shutdown of the restaurants in March prompted by the virus and restrictions such as limited capacity in place even after most of the company’s locations have reopened their dining rooms.
“Our priority is to make sure Red Lobster is one of the survivors of this crisis,” Lopdrup said. “While there are many unknowns, I am optimistic about Red Lobster’s future. We have a great team, and I’m proud of how nimbly they reacted to a fast-changing situation.”
Red Lobster is offering free delivery on orders larger than $30 placed on the company’s website or app Monday through Thursday, Lopdrup said.
Inside restaurants, Lopdrup said employees are wearing masks and have their temperatures checked when coming into work. Other safety measures include hand sanitizer stations, single-use menus and pay-at-the-table technology.
Moody’s also gave Red Lobster a negative outlook.
“Over the next 12 to 18 months, we think that things can get more challenging,” said Bill Fahy, vice president and senior credit officer for Moody’s.
Refinancing the loan that is reaching maturity next summer is an option for the company, Fahy said, but that won’t necessarily be easy.
“The ability to refinance things post-COVID, particularly in the casual dining world, is much more challenging,” he said.
Red Lobster, which has generated about $2.4 billion in annual revenue in recent years, had about $216 million in unrestricted cash in February, the Moody’s report said.
But it’s unclear how much the pandemic has affected Red Lobster, as privately held companies aren’t required to publicly release financial information.
“We expect a further deterioration in both earnings and credit metrics as the various restrictions placed on in-restaurant dining across Red Lobster’s entire restaurant base in an effort to control the spread of the coronavirus pandemic persist,” Moody’s said in its report on Red Lobster.
Orlando, Fla.-based Darden Restaurants sold Red Lobster in 2014 to San Francisco’s Golden Gate Capital for $2.1 billion. Thai Union bought a stake in Red Lobster in 2016.
A representative for Golden Gate Capital said the firm declined to comment for this story.
Another restaurant chain, California Pizza Kitchen, which was acquired by Golden Gate in 2011, filed for Chapter 11 bankruptcy protection in July, according to a story from Yahoo! Finance and other news reports.
