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October 07, 2011 at 13:14 PM EDT
Sbarro, Inc. Files Amended Disclosure Statement and Chapter 11 Plan That Significantly Reduces Debt and Provides Increased Liquidity

Sbarro, Inc., along with its domestic subsidiaries and affiliates (“Sbarro” or the “Company”), announced today that it has filed an Amended Disclosure Statement and related Amended Plan of Reorganization with the U.S. Bankruptcy Court for the Southern District of New York.

The Company is pursuing an improved version of the plan of reorganization sponsored by certain of its first lien lenders that was originally filed in early August. Under the Amended Plan, Sbarro will significantly reduce its total debt and expects to emerge with approximately $110 million in net debt, and the Company’s prepetition first lien lenders will become the new owners of the business by converting the majority of their debt to equity. Notably, the first lien lender sponsors have agreed to provide the Company with new money commitments of up to $35 million, which will provide significant additional liquidity for the Company’s post-emergence operations. The amended plan has the support of all of Sbarro’s key stakeholders, including the unsecured creditors committee.

Nicholas McGrane, Interim President and Chief Executive Officer of Sbarro, said, “The amended plan is a positive development for Sbarro that will allow the Company to emerge from bankruptcy in the very near term with significantly reduced debt. The plan also provides the Company with approximately $35 million of new capital to continue our turnaround effort, which has already increased same store sales year-to-date, including continued improvement in the third quarter. In addition, through this process, the Company has been able to improve lease terms at a number of locations and close some underperforming restaurants. We appreciate the support of our first lien lenders and believe the ample liquidity they have provided – combined with our reduced debt and operating expenses – will position Sbarro for accelerated growth going forward.”

Key terms of the Amended Plan include:

  • Converting up to $35 million of loans outstanding under Sbarro’s DIP Facility into new first-out rollover term loans, which together with the new money term loans of up to $35 million will comprise the “First-Out Exit Term Loan Facilities” of the reorganized company.
  • Converting a portion of the Prepetition First Lien Credit Facility into a $75 million “last-out” exit term facility;
  • Converting the remaining approximately $100 million in secured indebtedness outstanding under the Prepetition First Lien Credit Facility into substantially all of the common equity of Reorganized Sbarro; and
  • Eliminating all other outstanding debt.

Importantly, the exit financing package provided by the first lien lenders allows the Company to exit bankruptcy in the fourth quarter with significant cash interest coverage. As the Company enters the fourth quarter – historically its busiest period – it expects to be able to generate positive cash flow before year-end, resulting in net leverage below $100 million and expected liquidity of approximately $40 million by the end of 2011.

As previously disclosed, the Company obtained court approval for a plan overbid process, which established bidding procedures to allow interested third parties to “top” the first lien lenders’ original stalking horse plan, which contemplated a $110 million “take back” exit facility and new money commitments of up to $18.6 million. Although several third parties expressed interest in pursuing a transaction, the Company did not hold an auction and instead determined that the revised plan sponsored by the first lien lenders represented the best way forward for Sbarro.

Sbarro will seek approval of the amended disclosure statement at a hearing scheduled for October 11, 2011. If approved, the Company will begin to solicit votes on the Amended Plan, which it expects to confirm on November 17, 2011.

The Company is being advised by Kirkland & Ellis LLP, its legal counsel, and Rothschild Inc., its financial advisor. Cantor Fitzgerald Securities, the agent for Sbarro’s first lien lenders and post-petition debtor-in-possession lenders, is being advised by Davis Polk & Wardwell LLP, its legal counsel, and Conway Del Genio Gries & Co., LLC, its financial advisor.

Sbarro filed for bankruptcy protection on April 4, 2011. The chapter 11 cases are pending before the Honorable Shelley C. Chapman in the United States Bankruptcy Court for the Southern District of New York under case number 11-11527 (SCC).

For more information about the reorganization, please visit: www.sbarro.com.

About Sbarro, Inc.

Based in Melville, New York, we are the world's leading Italian quick service restaurant concept and the largest shopping mall-focused restaurant concept in the world. We have more than 1,000 restaurants in more than 40 countries. Sbarro restaurants feature a menu of popular Italian food, including pizza, a selection of pasta dishes and other hot and cold Italian entrees, salads, sandwiches, drinks and desserts. Additional information is available at http://www.sbarro.com/.

Forward-looking statements

There can be no assurances that any restructuring or acquisition of the Company will be successful, or the timeframe in which any such restructuring or acquisition would occur. This press release contains "forward-looking statements," within the meaning of the federal securities laws that involve risks and uncertainties. All statements herein that address activities, events, conditions or developments that the Company expects or anticipates will or may occur in the future are generally forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance, achievements or transactions of the Company and its affiliates to be materially different from any future results, performance, achievements or transactions expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include: (i) the occurrence of any event, change or other circumstance that could give rise to the termination of any interest in the Company or any agreements entered into with the Company's stakeholders regarding a proposed plan of reorganization, (ii) the risk that the proposed reorganization and the restructuring of its debt will not be accomplished as a result of future developments, including the Company's future financial performance, decisions of the bankruptcy court and actions and decisions of the Company's various creditor groups, (iii) the Company’s ability to successfully address the debt held by its existing first-lien lenders, and (iv) the impact of the bankruptcy filing and the bankruptcy process on the Company’s operations and financial condition, including its liquidity. Other factors are described in the Company’s prior filings with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise any forward- looking statements, whether as a result of new information, future events or otherwise. The Company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

Contacts:

Sard Verbinnen & Co
Jim Barron / Nathaniel Garnick, 212-687-8080
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