On February 24, 2020 (the “Petition Date“), Cosi, Inc. (“Cosi”, or the “Company”) and six of its affiliates (collectively, the “Debtors”) each filed a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware.
The Debtors are represented by Cozen O’Connor. The case has been assigned to the Honorable Brendan L. Shannon. A hearing on the Debtors’ first day motions was held on February 26, 2020. A meeting to form the unsecured creditors’ committee will be held on March 11, 2020.
Cosi operates fast-casual restaurants and associated catering services, specializing in a variety of made-to-order hot and cold sandwiches, pizzas, salads, bowls, breakfast foods, snacks, and dessert items, and a large offering of handcrafted coffee and speciality beverages. The original Cosi was founded in Paris in 1989, after which American rights were purchased and the first U.S. locations were opened in New York City in 1996. The Company’s catering business has grown and thrived, but its dine-in, fast-casual restaurant locations have continued to struggle, even after the Company’s emergence from a 2017 chapter 11 case.
Along with common factors such as economic conditions within the industry, shifting consumer tastes, growth in labour and commodities costs, and unfavourable lease terms, the Company suffered a unique setback with the January 2018 death of the principal of Cosi’s majority shareholder, which caused uncertainty in the funding and strategic direction of the Company. Following that passing, the Company continued to struggle operationally as that former majority shareholder did not make further fundings, and all outside funding for the Company was provided by an entity that was affiliated with the other shareholders of Cosi. Since 2010, Cosi’s physical locations have declined by over 80% and its restaurants by over 88%, while its catering business has grown over 44%. Since May 2019, Cosi has seen year-over-year gross monthly revenues in its catering business increase every month for nine consecutive months.
In December of 2019, in a prepetition effort to deleverage their balance sheet, bolster liquidity, and maximize value for stakeholders, Cosi significantly reorganized its business model and closed 70% of its physical stores. The former model has largely been replaced by a low-cost kitchen model with a significantly lower rent structure, which allows for the catering business to grow based on Cosi’s sales and marketing abilities, as well as brand awareness. This transformation of the Company’s model has improved all the major cost elements, with food, labour and lease cost all declining as a percentage of net company sales.
The Debtors filed these cases to prevent a full shut-down of operations, including the profitable catering business, for the benefit of their stakeholders and to preserve the jobs of nearly 240 employees working in the “new” Cosi. These cases are intended to allow the new Cosi to maximize the value in its healthy and growing business for the benefit of its stakeholders. The Debtors believe that once those initiatives are implemented and take hold, the business can and will be profitable and poised to emerge from these proceedings (See Vicki Baue Affidavit in Support).
As of the Petition Date, the Debtors’ outstanding loan obligations amount to $23,882,796 owed to LIMAB LLC and affiliated lenders, and rollup notes in the amount of $6,678,459, plus $1,816,123 in interest, owed to shareholders AB Opportunity Fund, LLC, AB Value Partners, L.P., and AB Management LLC (the “AB Funds”). The Debtors’ unsecured obligations consist of approximately $6 million owed to trade creditors, and $2.5 million in rejection damage claims from its 30 closed locations.
The Debtors seek authorization to use cash collateral and obtain senior secured, super-priority, post-petition financing from Lion Fund, LP, up to an aggregate principal amount of $3,000,000, of which $1,250,000 may be borrowed on an interim basis and used pursuant to a fourteen-week budget.
| Over $32 million. | |
| Approximately $8.5 million. | |
| FIRST DAY RELIEF FOR AUTHORIZATION TO PAY AND PAYMENTS | |
| Interim Relief An aggregate amount not to exceed $310,794.74. | Final Relief Unspecified. Debtors seek authorization to pay all undisputed sales and use taxes in the ordinary course of business. |
| Interim Relief Total unspecified, but includes approximately $1.4 million in outstanding gift cards and loyalty program credits of approximately $445,990.
Debtors request authorization to pay and honour-related obligations and maintain them post-petition. | Final Relief Total unspecified. Debtors request authorization to pay and honour-related obligations and maintain them post-petition. |
| Employees: 237: 61 full-time; 176 part-time. | |
| Interim Relief Total unspecified, but includes approximately $147,857 in wages, $15,000 in payroll taxes, $19,000 in payroll processing, $12,500 per month relating to insurance plans, and $22,500 per month relating to worker’s compensation insurance, and no more than $10,000 for reimbursable expenses. No payment shall exceed the statutory cap of $13,650. | Final Relief Unspecified. Debtors seek authorization to continue to honour and pay all obligations in accordance with their ordinary policies and pre-petition practices and in the ordinary course of business.
No payment shall exceed the statutory cap of $13,650. |