Cosi restaurant
Cosi's board unanimously determined that a sale in Chapter 11 was in the best interest of the company and its creditors.

BOSTON — A month after letting its chief executive officer go, fast-casual restaurant chain Cosi, Inc. has filed voluntary Chapter 11 petitions in the United States Bankruptcy Court for the District of Massachusetts. The filing sets into motion a process the company said is “intended to preserve value and accommodate an orderly going-concern sale of Cosi’s business operations.”

Cosi said it has obtained approximately $4 million in post-petition debtor-in-possession (DIP) financing. The financing is expected to be used to provide the company with liquidity to maintain its operations in the ordinary course of business during the Chapter 11 process.

“We worked very hard to avoid this step,” said Mark Demilio, chairman of the board at Cosi. “With the advice and support of outside advisers, we’ve explored multiple paths, including raising capital through equity and/or debt in either public or private transactions, selling the company outside the bankruptcy process, selling certain assets of the company, and other transactions to restructure the balance sheet or raise capital, while also focusing on attempting to improve sales, reduce costs, and exit underperforming locations. It’s become clear that, despite the extensive efforts by the company, no such transactions are achievable at this time, that the company cannot continue to operate in its current financial condition, and that the best alternative for the company and its creditors would be to accomplish a sale through the bankruptcy process.”

Prior to the Chapter 11 filing, Cosi said it entered into a non-binding term sheet with its lenders, AB Opportunity Fund L.L.C., AB Value Partners, L.P., and one or more entities affiliated with Milfam II L.P., pursuant to which the DIP lenders or their designees have proposed to purchase substantially all of Cosi’s assets. Subject to bankruptcy court approval, the lenders would serve as the “stalking horse” in a sale process under Section 363 of the bankruptcy code, according to Cosi.

Cosi melts sandwiches
Cosi removed its melts category as part of its menu reduction plan.

Under Section 363 of the bankruptcy code, notice of the proposed sale to the DIP lenders or their designees will be given to third parties and competing bids will be solicited, Cosi said, adding that its board of directors will manage the bidding process and evaluate the bids, in consultation with independent professional advisers and as overseen by the bankruptcy court.

Prior to the Chapter 11 filing, Cosi said it closed 29 of its 74 company-owned restaurants, while its 31 franchised locations are unaffected by the filing.

“This was a difficult step, but it was necessary to address our liquidity issues," said Patrick Bennett Sr., interim c.e.o. of Cosi, Inc. “Cosi’s core business and franchise base remain intact, and we filed with the liquidity resources necessary to carry out the restructuring plan. We believe this process will allow the company to right-size its balance sheet, reduce its debt, and focus on improving the business and stabilizing the brand.”

Mirick, O’Connell, DeMallie & Loungee, LLP is serving as legal counsel, and the company said it will appoint a chief restructuring officer within 7 to 10 days.

Over the past year, Cosi has implemented several steps it hoped would help it avoid its current situation. In March, then-president and c.e.o. RJ Dourney said the company would reduce its menu in an effort to steer customers to what it considered its more “cravable” items. But in August, with its strategy failing to pay off, the company let Mr. Dourney go. At the same time, the company said its chief financial officer, Miguel Rossy-Donovan, submitted his resignation to accept the position of c.f.o. at another company.

Founded in 1998, Cosi operates and franchises fast-casual restaurants that sell made-to-order hot and cold sandwiches, salads, bowls, soups, appetizers, flatbread pizzas, breakfast wraps and other breakfast products. In fiscal year 2015, Cosi sustained a loss of $15,655,000 on revenues of $89,890,000, which compared with a loss of $16,625,000 and revenues of $77,758,000 in fiscal 2014.