Out West Restaurant Group, a major franchisee of Outback Steakhouse, filed for Chapter 11 bankruptcy protection in Delaware. The parent company, Bloomin' Brands, has agreed to acquire 61 restaurants and most other assets from Out West for about $26.3 million, according to details in a Securities and Exchange Commission filing.

Out West Restaurant Group, based in San Diego, operates Outback Steakhouse locations across Arizona, California, Colorado, Nevada, and New Mexico. The company’s bankruptcy filing comes after years of financial trouble that began in 2018 and worsened during the pandemic, which led to a 35% drop in revenue. The group accumulated nearly $320 million in secured debt and attempted to sell itself four times since 2018, closing several restaurants along the way.

Bloomin' Brands is providing up to $5.5 million in debtor-in-possession financing to help fund Out West's operations through the bankruptcy process, with the purchase price reduced by that amount. The agreement is a stalking horse bid, setting the minimum floor price for a court-supervised sale. If liabilities at closing are less than $6.1 million, the purchase price could increase dollar-for-dollar by the shortfall, but if they equal or exceed $6.1 million, there will be no further price change.

Bloomin’ Brands called the bankruptcy an “isolated incident” that will not affect its corporate operations or financing. Bloomin’ Brands also said it is “working closely with Out West, its lenders, and other stakeholders throughout the Bankruptcy Court-supervised process as it focuses on maintaining stability in Out West’s restaurant operations, supporting Team Members and continuing to serve guests."

Out West was Bloomin’s first franchisee and played a key role in bringing the Florida-based Outback Steakhouse brand to the western United States. The franchisee once operated as many as 100 Outback locations. If Bloomin’ Brands successfully acquires these restaurants, it could take direct control of a majority of Outback’s franchised locations in the U.S.

The affected restaurants will remain open during the bankruptcy proceedings.

The Herd with Colin Cowherd