Bloomin' Brands looks to buy Outback restaurants from bankrupt franchisee

A franchisee owning 61 Outback Steakhouse restaurants in several western states has filed for bankruptcy and Tampa-based Bloomin’ Brands has agreed to buy its assets for $26.3 million.

In a filing with the Securities and Exchange Commission Monday, the parent company of the Outback Steakhouse chain says it agreed Sunday to enter into a stalking horse purchase agreement for the assets of Cerca Trova Restaurant Group Holdings Inc. The San Diego, California, company does business as Out West Restaurant Group

Bloomin’ says in the filing that it is buying the assets because it “believes that securing these restaurants gives it direct operational insight, allows it to invest in the units through its development initiatives and to mitigate disruption to guests and employees.”

A bankruptcy judge still has to name Bloomin’ as the stalking horse bidder and then a court-supervised asset sale will be held. (According to the Corporate Finance Institute, a stalking horse bidder “sets the pace for other bidders, such that other bidders cannot bid below the purchase price.)

Bloomin’ has also agreed to provide up to $5.5 million of debtor-in-possession financing to the company, according to the SEC filing.

Out West filed for Chapter 11 bankruptcy Monday in Delaware. According to court papers, the company’s Outback locations are in California, Arizona, Nevada, New Mexico and Colorado. It employs about 3,669.

In a preliminary statement included in the bankruptcy filing, Out West blames the bankruptcy on macro issues in the economy as well as rising labor costs in California and the aftereffects of the pandemic.

And its troubles stretch back to 2018.

Out West’s roots can be traced back to a company incorporated in 1994 as the T-Bird Restaurant Group for the purposes of developing an Outback franchise in California.

By 2018, according to the filing, it operated 99 restaurants with annual sales of more than $340 million. That, it says, made “it the largest franchisee in the Outback Steakhouse system.”

To finance its growth, the company took on debt and not long after was faced with “sector-wide headwinds (that) stymied the earnings growth that the debt assumed.”

At the same time, it was facing year-over-year declines in guest traffic while increasing labor costs after what it calls successive wage increases in California, where most of its employees worked. “By the end of 2018, the company could no longer satisfy the financial covenants under its senior credit facility.”

And then in 2020 COVID hit, the lockdown began and the company’s revenue plunged by about 35%.

Sales recovered in 2021 and 2022 but, according to the filing, Out West has operated under a series of forbearance agreements since 2022. As a result, interest has accrued at the default rate and that has been added to the balance of the loans.

“By 2026, the pressures on the business had converged. Guest traffic and earnings continued to decline, while food, labor and other production costs continued to rise,” Out West writes in the filing.

While the principal amount of the loans has remained at about $129 million, Out West says in the filing that its senior secured obligations have grown from about $140 million in November 2020 to about $319.9 million today. Its interest expense of about $45.9 million was more than five times its covenant EBITDA in fiscal year 2025, according to the filing.

As for cash, it had about $9.7 million at the end of fiscal year 2023. That dropped to about $5.7 million as of October 25. The company projects that it would have about $3.4 million when it filed Monday.

To adjust, the company closed three underperforming restaurants earlier this year as well as 10 that are not included in the proposed sale shortly before Monday’s bankruptcy filing.

Bloomin’ Brands, for its part, says in the SEC filing that it “is working closely with Out West, its lenders and other stakeholders throughout the Bankruptcy Court-supervised process as it focuses on maintaining stability in Out West’s restaurant operations, supporting team members and continuing to serve guests without disruption.”

In addition to Outback, the Bloomin’ portfolio is made up of Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar. In all, it owns and operates more than 1,440 restaurants in 46 states, Guam and 12 countries.

The company’s revenue rose 1.3% to $1.01 billion in the second quarter of this year when compared with the same period the previous year, according to its quarterly earnings report released in August.

That same earnings statement showed that as of March 28 the company operates 662 Outback restaurants — 546 are company owned and 116 are franchisee owned — in the U.S.