Cosi Files For Bankruptcy Protection

(RTTNews) - Fast-casual restaurant chain Cosi Inc. (COSI) and its units have filed for Chapter 11 bankruptcy protection and plans to sell itself to lenders. The move comes after the company failed to find a buyer or raise capital.

Cosi, known for its homemade flat bread, said Wednesday that it filed for voluntary Chapter 11 petitions in the United States Bankruptcy Court for the District of Massachusetts. The company noted that the process will allow it to continue normal business operations during the bankruptcy court-supervised sale process.

According to the court filing, the Boston-based company listed assets of $31.2 million and debt of $19.8 million.

Patrick Bennett Sr., interim CEO of Cosi, said, "This was a difficult step, but it was necessary to address our liquidity issues. Cosi's core business and franchise base remain intact, and we filed with the liquidity resources necessary to carry out the restructuring plan."

Cosi said it received about $4 million in post-petition debtor-in-possession or DIP financing that will provide it with liquidity to maintain its operations in the ordinary course of business during the Chapter 11 process.

Prior to the bankruptcy filing, Cosi entered into a non-binding agreement with its lenders, AB Opportunity Fund LLC, AB Value Partners, L.P., and entities affiliated with Milfam II L.P., under which the DIP lenders or their designees have proposed to purchase substantially all of Cosi's assets.

Subject to bankruptcy court approval, the DIP lenders would serve as the "stalking horse," or lead bidder in a sale process at Cosi's bankruptcy-run auction.

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 closed 29 of its 74 company-owned restaurants, prior to the bankruptcy filing. However, the company's 31 franchised locations are unaffected and will remain open.

For the recent second quarter, Cosi reported a net loss of $3.1 million or $0.07 per share, while revenues declined 7 percent from the year-ago period to $22.8 million. System-wide comparable restaurant net sales decreased 4.5 percent.

In mid-August, Cosi said its chief financial officer Miguel Rossy-Donovan submitted his resignation to accept the position of CFO at another company. In addition, the company's board of directors terminated RJ Dourney as chief executive officer & president, with immediate effect.

The company said Wednesday that Patrick Bennett will continue to serve as Cosi's interim CEO, while Edward Schatz of The O'Connor Group, Inc. will continue as interim CFO.

Mirick, O'Connell, DeMallie & Loungee, LLP is serving as legal counsel for Cosi. The company will appoint a chief restructuring officer within 7 to 10 days.