This story was updated Monday, Jan. 20, 2020, at 11:21 p.m. with more information.
The South's oldest fast-food restaurant chain famous for its small, square hamburgers has filed for bankruptcy for the second time in 23 years.
The Krystal Co., which operates or franchises more than 300 restaurants across the Southeast, filed a Chapter 11 petition Monday in federal court to reorganize its finances under the protection of the U.S. Bankruptcy Court in Northern Georgia. The restaurant chain will continue to operate its fast-food restaurants, including more than two dozen in the Chattanooga market, while it restructures its debt and pays off creditors in the bankruptcy proceedings.
"Our customers can expect to continue to enjoy the same great food and service that they have come to expect from us," Krystal said in a statement Monday. "The actions we are taking are intended to enable Krystal to establish a stronger business for the future and to achieve a restructuring in a fast and efficient manner."
In court filings in Atlanta, Krystal Holdings Inc. listed debts between $50 million and $100 million and named a managing director for a New York consulting firm to serve as chief restructuring officer under the Chapter 11 proceedings.
In a special board meeting called Sunday, directors of Krystal voted to name Jonathan Tibus, managing director for Alvarez and Marshal, to lead the restructuring of the company.
The bankruptcy filing came just two months after the company announced a new executive team and hired an investment firm to try to franchise 100 to 150 of the Krystal units to other owners.
Krystal said the former top officers of the company, Chief Executive Paul Macaluso and Chief Financial Officer Berry Epley, left Krystal in November. In their place, Tim Ward, formerly president of Captain Ds, was hired as Krystal's president and chief operating officer, and Bruce Vermilyea, formerly senior vice president and chief financial officer for Quiznos, was named executive vice president and chief financial officer for Krystal.
Although Macaluso reported last year that Krystal sales initially rebounded in 2019 for the first time in three years, the restructuring and renovations of the Krystal restaurants appear to have left the chain with more debt, helping to lead to the bankruptcy filing.
Late last year, Krystal announced plans to try to refranchise 100 to 150 of Krystal's company owned stores to help recapitalize the company. Krystal hired the Cypress Group, a specialized investment banking firm, to manage the refranchising initiative after Krystal was successful in gaining its first new franchise in 14 years in Arkansas.
At the time prior to his departure from Krystal, Macaluso said hiring Cypress and selling off the restaurants or getting new franchise agreements was "the next step in the brand transformation that began when I came on board in 2018."
"We've seen great success with the new restaurant prototype, remodels and operational upgrades," Macaluso said last year. "It's time to accelerate the redevelopment of the fleet and expand our footprint through strategic refranchising."
Last fall, franchisees Anand Patel and Kalpesh Das of Slider Joint LLC announced plans to build three Krystal units in Jonesboro, Arkansas, becoming the first new franchisees to join Krystal since 2005.
Monday's bankruptcy filing comes 23 years after Krystal filed for bankruptcy in 1997 due to millions of dollars of employee claims for unpaid overtime. Krystal was acquired from bankruptcy at that time by Port Royal Holdings in a $145 million deal.
The company was later sold and relocated its headquarters from Chattanooga to Atlanta in 2013 when it was purchased by the private equity firm Argonne Capital.
The 88-year-old Krystal Co., is the nation's second oldest fast food chain, behind only White Castle, which started in 1921 in Wichita, Kansas. The company operates in 10 states and has more than 6,500 employees.
The owners of Krystal said Monday they have established a Restructuring Information Hotline for interested parties at 888-249-2792.
Contact Dave Flessner at firstname.lastname@example.org or at 423-757-6340.