Sbarro emerges from bankruptcy

Melville-based Sbarro Inc. emerged from bankruptcy protection this week, lighter in debt and with a $35-million cash infusion from its new owners. But like others in the restaurant industry, the pizza and pasta chain faces an uncertain economy and cautious consumers.

The company, which filed for Chapter 11 bankruptcy protection in April, announced late Monday afternoon that its reorganization plan eliminates 70 percent of its debt. The plan allowed lenders to convert some of the debt into equity: stock in the reorganized company.

"We are a stronger, better-capitalized, and more competitive company with a solid financial foundation for future growth," Nicholas McGrane, interim president and chief executive of Sbarro, said in a release.

When the company filed for bankruptcy protection, it pointed to a surge in prices of raw materials like cheese and flour in 2007 and 2008 and declines in mall traffic in 2008 and 2009 as factors in its financial troubles. Also adding to Sbarro's difficulties was the debt it took on when private equity firm MidOcean Partners bought the company in 2007.

Standard & Poor's gave the reorganized Sbarro, which has 12 stores on Long Island, a B-minus corporate credit rating, which is below investment grade. Although Sbarro will have $280 million less debt on its balance sheet, the ratings agency said it expected the company to remain "highly leveraged in the near term."

The agency described Sbarro's business as "vulnerable," citing a fragmented and competitive pizza segment of the restaurant industry and vulnerability to volatile commodity prices. Sales at stores open for more than a year "improved modestly year-to-date" as of Sept. 30, but the agency anticipated that mall traffic will continue to suffer in a slower-than-expected economic recovery. Sbarro has more than 1,000 restaurants around the world, many of them in malls.

Standard & Poor's did give the company an overall stable outlook, expecting sales and profitability to improve modestly and the company's access cash to remain adequate over the next 12 months.

"Until we see consumer confidence really pick up, we aren't going to see consumers out there spending much," said Bonnie Riggs, restaurant industry analyst for The NPD Group in Port Washington. "They are still very tenuous."

While consumers remain cautious, the quick-service segment of the restaurant industry is holding its own, with quick-service chains showing growth, Riggs said. -- With AP