Is Chuck E. Cheese Headed Towards Bankruptcy? Pizza Chain Needs Financing To Avoid Chapter 11

Children’s pizza chain Chuck E. Cheese is reportedly looking to avoid a bankruptcy filing by securing a $200 million loan from its lenders.

The company has been in talks on obtaining financing as a $1.9 million quarterly loan payment comes due at the end of June, sources for The Wall Street Journal said.

Chuck E. Cheese closed its dining rooms in March and furloughed the majority of its staff as well as 65% of its support staff as the coronavirus pandemic took hold, Retail Dive reported. While the company has reopened the majority of its restaurants, it is still feeling the pinch of COVID-19 as it operates at limited capacity while relying on its dining rooms and entertainment to draw in customers.

Over the years, Chuck E. Cheese has seen growing competition from other children’s entertainment venues, which are also continuing to hurt as consumers wait to return to these locations until public health authorities deem them safe.

The company has a nearly $1 billion debt load, with more than $100 million in interest paid on that debt last year, the news outlet said. It grew its sales by 2.7% in 2019, after launching a new loyalty program for customers as well as a gaming app and national delivery.

While Chuck E. Cheese looks to diversify amid the coronavirus pandemic by holding at-home birthday parties and carryout orders under the Pasqually's Pizza & Wings brand, it has not been enough to improve revenues during the COVID-19 crisis.

To ensure that its officers are retained with the company, Chuck E. Cheese has provided bonuses through a Key Employee Retention Program, which is paying CEO David McKillips $1.3 million, President J. Roger Cardinale $900,000, and Executive Vice President and Chief Financial Officer James Howell $675,000.