Trust in Bankruptcy Lawyers to Save Krystal's

Yes, Krystal’s filed for Chapter 11 Bankruptcy.

But, don’t worry. A bankruptcy filing doesn’t mean that the South’s favorite tiny hamburger is going away. In fact, there’s a good chance it’ll be a stronger chain after all this.

Krystal’s financial problems appear to be a relatively new problem, based on documents filed in the main Bankruptcy case.

As part of the case, the lead company filed a Declaration by its Chief Restructuring Officer, who has been trying to help Krystal correct course (and hired very recently, in November 2019).

Of the nearly 300 locations, the company closed 44 locations in 2019, including 13 closures on December 15, 2019 (in anticipation of the bankruptcy filing, I’d assume).

The quick summary? “Shifting consumer tastes and preferences, growth in labor and commodity costs, increased competition, and unfavorable lease terms.”  You can download and read a full copy of the Declaration here:

The Declaration tells the story of the events leading up to the bankruptcy filing, starting with the invention of the “iconic square hamburger patty slider” in 1932. It’s written by bankruptcy lawyers, so don’t expect a glowing press release.

The summary of the problems is this:

  • Increased competition due to “proliferation of fast casual restaurants as well as online delivery platforms…”
  • “Difficulty finding and retaining qualified employees…”
  • Entry into an expensive store rebuilding program, at a cost of about a million dollars per location.
  • Default under a Forbearance Agreement on a $50 million loan.
  • A “security incident” involving one of the company’s “payment processing systems.”

In a nutshell, the Bankruptcy docket tells a familiar story, about how a changing industry landscape is creating havoc in long-standing businesses.

This is obviously early–in fact, all the filings I looked at are what is called the “First Day Motions.” But, given the amount of debt involved and brand recognition–and, yes, I’m talking about the out-pouring of concern on twitter–I suspect Krystal’s can figure this reorganization out.

And, honestly, I’ve eaten a lot of Krystal’s during my time. If part of the reorganization is shutting down bad stores and remodeling others, I think it’s a good plan.

Author: David

I am a creditors rights attorney with Bone McAllester Norton PLLC in Nashville, Tennessee.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s