Unsecured creditors unhappy with Cosi Inc.’s auction proposal pushed the flatbread sandwich chain’s lead bidder to increase its offer and won extra time for rival bidders to enter the fray.
Judge Melvin Hoffman of the U.S. Bankruptcy Court in Boston on Thursday said Cosi could officially put itself up for sale after hearing that hedge fund AB Value Management LLC and Ohio investment firm Milfam LLC now will start the bidding for the casual dining chain at $10 million instead of $6.8 million. They also will take on about $1.6 million in gift-card liabilities, the bidders’ attorney, William Baldiga, said Thursday.
The increased stalking horse, or lead, offer, as well as a bid deadline that is two weeks later than what Cosi originally proposed, is the result of negotiations with unsecured creditors who had expressed concerns with the company’s original sale proposal. Afederal bankruptcy watchdog also had objected, calling the process “unfair” to rival bidders.
Now, bids for Cosi—which offers sandwiches, salads and soups—will be due Nov. 28, and, if necessary, the company will hold an auction on Nov. 30. Cosi will then look to have its sale approved by Judge Hoffman on Dec. 8.
Since filing for bankruptcy protection in late September, Cosi has reached out to more than 150 potential bidders, Cosi attorney Christine Devine said on Thursday. She said 31 of those potential bidders have signed nondisclosure agreements to look further into the chain’s financial information, and Ms. Devine said the hope is to double that number by the Nov. 28 bid deadline.
Thursday’s hearing agenda was supposed to include Cosi’s request for $4.1 million in bankruptcy financing from AB Value and Milfam, the lead bidders at the coming auction. However, the company bumped its financing request off until Oct. 31 to give it time to resolve objections from the unsecured creditors and bankruptcy watchdog.
In court papers, the unsecured creditors said the loan is a “product of overreach which insulates the prepetition lenders from attack and is designed to force a truncated auction process,” which would essentially guarantee they would prevail as Cosi’s buyer.
Cosi abruptly closed 29 underperforming restaurants and laid off about 450 employees days before filing for chapter 11 protection on Sept. 28.
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