Cosi Inc (NASDAQ:COSI) reported that it and its affiliates filed for Chapter 11 in the U.S. Bankruptcy Court, initiating a process envisioned to preserve value and support an organized going-concern sale of business operations. The company has obtained circa $4 million in debtor-in-possession financing. This will help the firm get liquidity to support its businesses in the ordinary course of operations during the Chapter 11 process.
Prior to the bankruptcy filing, Cosi finalized a term sheet with its lenders, AB Value Partners, L.P., AB Opportunity Fund LLC, and entities allied with Milfam II L.P. Following this development, the DIP lenders or respective designees have planned to buy considerably all of company’s assets and, depending on approval from Bankruptcy Court, it would work as the stalking horse in a sale procedure under Section 363.
The reported term sheet is non-binding in nature and the transaction envisaged thereby is reliant to, among other factors. Cosi plans for such a sale, if closed, to ensure a swift and smooth transition of the operations and business to the DIP Lenders or related designees. It would be sustained by a healthier balance sheet due to walking out disappointing locations and once firm assets are sold without any claims.
The management view
Mark Demilio, the Chairman of Cosi’s Board, said that they have worked very hard to dodge this step. With the counsel and support of external advisors, they have identified multiple paths, including generating funds through equity and/or debt in private or public transactions. The other options include selling the firm outside the bankruptcy proceedings, selling certain assets, and other deals to streamline the balance sheet or generate capital.
Besides, the focus will be on attempting to reduce costs, exit underachieving locations and improve sales. It’s become evident that, in spite of the extensive measures by Cosi, no such deals are seen at this time, that can help the firm continue its businesses in current financial condition. As of now, the best available alternative for the firm and its creditors is to close a sale following the bankruptcy process. The management said that it was a tough decision, but it was required to resolve existing liquidity concerns.