Sonic Drive-In Franchisee Files For Bankruptcy: Will The 73 Restaurants Survive?

The owner of 73 Sonic Drive-In restaurants, 14 MOD Pizza locations, and three Fuzzy Taco Shop stores has filed for Chapter 11 bankruptcy protection. The franchisee, SD Holdings, filed for bankruptcy to reportedly find a buyer for its restaurants and is the latest ina string of restaurants to file for Chapter 11.

SD Holdings was saddled with financial issues, facing $22.3 million in secured debt, which exceeded its asset value and could have caused the closure of all of its restaurants, Restaurant Business reported.

According to the bankruptcy filing obtained by the news outlet, SD Holdings was “facing unsustainable debt loads, an untenable cash position and numerous lawsuits in multiple states.” The company has restaurants located in North Carolina, Tennessee, Virginia, and Alabama.

SD Holdings reportedly started having cash flow problems in 2018, taking cash advances to continue its operations, which came with high-interest rates, that combined with the seasonality of its restaurants, contributed to the company’s bankruptcy filing.

Sonic Corp. said on Monday that it planned to acquire the 73 Sonic restaurants from SD Holdings. Sonic Corp. is owned by Inspire Brands.

“Adding these Sonic drive-ins to our company-owned portfolio is an outstanding opportunity to continue to serve our fans,” Claudia San Pedro, Sonic’s president, said in a statement (via Restaurant Business).

“These drive-ins have a history of strong performance and I’m pleased we are able to make this investment to help ensure uninterrupted operations and continued employment for the Sonic team members,” she added.

At one time, SD Holdings operated more than 60 McAlister’s Deli locations, which it reportedly sold throughout 2016 and 2017. Following the sale, SD Holdings then purchased 64 Sonic restaurants and started developing its MOD Pizza and Fuzzy’s Taco locations.