Background on the Debtor

Metromedia Steakhouses Company, L.P., parent company to Bonanza Steakhouse and Ponderosa Steakhouse,  filed petitions for chapter 11 bankruptcy in the District of Delaware on October 22, 2008.  As stated in Metromedia’s affidavit in support of first day motions,  Bonanza Steakhouse began in Texas in 1963 and grew to over 600 restaurants in the 1980s, most of which were operated as franchises.  Likewise, Ponderosa grew to almost 700 restaurants in the 1980s, half of which were company-operated and half franchised. 

By 2007,  Metromedia’s Bonanza division was down to 48 restaurants in 14 states.  Ponderosa reduced the number of its restaurants to 285 locations in 17 states.  At the time it filed for bankruptcy, Metromedia’s restaurants employed 2,070 hourly employees and 230 salary based employees. 

Why Metromedia Filed for Bankruptcy

To remain profitable in the restaurant industry requires high name recognition, good location, quality food and service, as well as attractive stores.  A restaurant’s business model can be affected greatly by dining trends, food preferences, demographic changes and consumer spending.  An inability to identify and respond to changes in the market can have immediate adverse effects on an otherwise successful restaurant business.  According to Metromedia,  its restaurant sales suffered from increased local and regional competition in the full-service restaurant industry.  Further, the downturn in the economy, coupled with increased fuel prices, reduced consumers’ willingness to dine out.

Metromedia’s Financials

In June of 2008,  Metromedia listed $59.2 million in total assets (including cash, accounts receivables, inventories and intangibles).  Metromedia’s liabilities total $278.5 million.  Ponderosa Restaurants generated gross sales for the first half of 2008 of approximately $38.9 million.

Objectives in Bankruptcy

For several years, Ponderosa and Bonanza have experienced declining sales, causing Metromedia to close under-performing stores.  However, due to a reduction in revenue, Metromedia lacked the resources necessary to terminate leases.  Instead, it was often forced to sublease the stores at terms below the originally contracted rental amount.  Through bankruptcy (including the ability to reject or assume and assign leases), Metromedia hopes to trim its operations to a "manageable and profitable core of restaurants."

The Metromedia bankruptcy is being presided over by the Honorable Mary F. Walrath.  Metromedia is represented by Pachulski Stang Ziehl & Jones LLP.