WILBRAHAM, Mass. (WGGB) -- The rumors of recent days have proven true: Friendly Ice Cream Corp. filed for Chapter 11 reorganization early Wednesday morning, taking with it 63 of the chain's 487 restaurant locations, which closed overnight. The company hopes to absorb as many of the roughly 1200 displaced at surviving stores.
The bankruptcy filing includes a host of motions. Chief among them, says business attorney Michael Katz of Bacon Wilson P.C. in Springfield, is a motion to approve Debtor In Possession financing, essentially allowing the company to borrow $70 million - despite its existing unpaid obligations - to combine with ongoing cash revenues to continue operations.
Another motion would allow the company to pay employees any salaries currently in arrears. Katz says, "I believe wages are all current. I don't think there's been any missed pay periods, and if the court allows this motion so that people are paid for last week, then basically the only risk [employees] take is week-to-week, and if anybody doesn't get their salary I'm sure the bankruptcy court's going to be notified immediately, and they would probably shut the company down."
Furthermore, in the worst-case scenario, Katz says although the Pension Benefit Guaranty Corporation is listed among the top-20 creditors, employees' retirement accounts are safe.
But any doomsday hypothetical, he says, is not to arouse panic. Friendly's CEO Harsha Agadi echoes the sentiment. "Contrary to any opinions that might be floating there, we are stable. It's business as usual." In fact, the only thing unusual, says Agadi, is that Friendly's just enjoyed the best September in its 76-year history. So, why the bankruptcy?
"There's a severe downturn in the economy, but in addition to that, we've had an escalation of commodity costs, specifically dairy," says Agadi.
Katz adds, "...Many people feel [Friendly's] lost its focus, and they introduced dishes with seafood and basically anything - Mexican, and people sort of feel it lost its identity."
An identity that thrived on burgers, hot dogs, fries, and ice cream products. Especially ice cream products. Given that dairy has been among the most inflated commodities, perhaps the crisis shouldn't be that big a surprise.
Not that that's any consolation to unsecured creditors - among them Garelick Farms, Coca-Cola, and Heinz - which likely won't see their receivables ever paid in full.
Another key portion of the company's reorganization strategy is getting approval to abandon unexpired leases at some its store locations, part and parcel with the aforementioned trimming of retail outlets.
If management makes all the right moves, says Katz, there's no reason to bid the Fribble farewell.
"While we're all going to wave the pom-poms and be the cheerleaders, ultimately they have to score the touchdown. That's what we're going to do, we're going to watch."
James Vinick of Moors & Cabot Investments in Springfield agrees.
"It's a sad day emotionally for a lot of people because of the bankruptcy filing, but I see something positive coming out of it. I see the fact that the company will be much more financially stable - that's number one - number two, employees will continue to be employed."
Vinick goes on to say, "I truly believe that, down the road, Friendly's will probably have more, larger stores, once they become financially solvent".
Time will tell whether the result is the turn of a Friendly card.
By: Jeff Valin
This story oringinally appeared on WGGB TV's website here