Hooters Files for Bankruptcy as High Costs Deter Casual Diners

(Bloomberg) — Hooters of America, the casual dining chain known for its chicken wings and skimpy server uniforms, has become the latest iconic restaurant brand to falter in the face of stubborn inflation and Americans’ fading interest in eating out. 

The Atlanta-based company filed for bankruptcy in Dallas on Monday, saying a “liquidity crunch” prevented it from making necessary investments.

The Chapter 11 filing follows that of seafood chain Red Lobster, which went bankrupt last year after a money-losing “endless shrimp” promotion, and TGI Friday’s Inc.’s failure in November after it struggled to turn around its business. The companies were battered by the pandemic like the rest of the industry and have been contending with competition from cheaper fast-food chains and declining restaurant traffic overall as Americans balk at rising prices. 

Hooters listed $376 million of funded debt obligations and is seeking approval for $40 million of debtor-in-possession financing from certain existing lenders, including $35 million of new capital, according to a press release Monday. That would provide the company with ample liquidity to support operations during the Chapter 11 process, which is expected to last until August, according to the statement. 

The filing is part of a plan by the chain’s founders and other stakeholders to bring it back to its roots as a more family-friendly restaurant, according to Neil Kiefer, chief executive officer of the founder-owned unit, HMC Hospitality Group. As the Florida businessmen who founded Hooters in 1983 see it, decisions by the brand’s private equity owners took it away from its beginnings as a beachy destination offering good food and good service.

“I’m calling it a re-Hooterization,” Kiefer said in an interview in March at the chain’s original location in Clearwater, Florida.

A turnaround plan would likely see HMC, which owns 22 restaurants combined in Florida and Illinois, and other operators of Hooters franchises take over most of the US locations currently owned and run by Hooters of America, though some may close. Hooters systemwide in the US shuttered more than 40 locations last year, according to food service consulting firm Technomic.

Hooters’ complex debt financing could be one of the wrinkles in a restructuring. Its bonds are packaged as whole-business securitizations, through which it pledges most of its assets, including franchise fees, as collateral. 

The firm listed Barstool Sports Inc. as one of its 30 largest unsecured creditors who are not company insiders, with around $1.24 million of unsecured claims. Barstool has been embroiled in controversy over the past two decades including allegations of sexual misconduct against its owner Dave Portnoy, and fines for violating advertising rules and gambling restrictions. 

Hooters has approximately 5,957 employees, according to the court documents. It directly owns and operates 151 restaurants in 22 US states, and maintains 154 franchise agreements with restaurants in 19 US states and 17 countries in the Americas, Europe, Asia and Africa, the filings show.

The bankruptcy case is Hooters of America LLC, 25-80078, US Bankruptcy Court for the Northern District of Texas.   

–With assistance from Jonathan Randles, Luca Casiraghi, Rheaa Rao and Eliza Ronalds-Hannon.

(Rewrites throughout, add details from filing)

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