In many cases, a bankruptcy filing can be a pause, a chance to restructure operations and move forward. When it’s a retailer or restaurant filing for Chapter 11 bankruptcy protection, part of the process usually involves closing some failing stores.
That’s generally a positive as most retailers and restaurants have a handful of locations where the economics no longer makes sense. The covid pandemic, for example, caused some companies to allow workers to work from home or offer hybrid work schedules.
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Because of that, some retailers and restaurant chains found themselves with locations that no longer had enough customers. People simply no longer visited the areas where some locations operated in big enough numbers to justify keeping the store open.
Even a healthy chain like Starbucks closes dozens of stores each year due to population shifts, When that happens, the company either operates the store until its lease expires, or closes and pays off the lease.
A bankruptcy filing allows a struggling retailer or restaurant chain to close locations and, in some cases, get out of their lease obligations.
On the Border sells Mexican classics including tacos.
Image source: Shutterstock
On the Border wants out of its leases
When On the Border filed for Chapter 11 bankruptcy on March 5, the company immediately closed nearly 80 locations. That’s almost two-thirds of its stores, according to the Chapter 11 bankruptcy filing.
On the Border wants to get out of its lease obligations.
“As of the Petition Date, the Company is party to 113 active leases in connectionwith its restaurant locations, approximately of which a significant number relate to non-operational locations. As described below, the Debtors seek to reject the leases for non-operational restaurants as of the Petition Date,” it shared.
The filing laid out a key source of the company’s financial struggles.
“In 2024, the Company spent approximately $25,315,000 in lease obligations, over $11,878,000 of which relate to underperforming stores. Given the Company’soperational headwinds and financial position, payment of lease obligations associated with non-performing leases has caused significant strains on the Company’s liquidity,” it added.
Basically, On the Border has been losing money on leases that cost more than many of its locations bring in. The company has been taking steps to cut its costs, a process which started before its Chapter 11 bankruptcy filing.
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“The Debtors have already begun to reduce their cost structure withoutcompromising quality by rationalizing the Debtors’ restaurant footprint. On or recently before February 24, 2025, the Debtors made the difficult decision or were otherwise required to close and vacate forty (40) stores,” according to the filing.
These 40 stores were “deemed to be non-performing because of rent costs and/or financial performance, such that operating those stores was deemed to be financially burdensome to the rest of the Company.”
On the Border has asked the court to release it from its lease obligations at closed stores.
On the Border hopes to survive
On the Border hired Hilco Corporate Finance, LLC in January for a potential marketing process to sell their assets on a going-concern basis, or to consummate another strategic, value-maximizing transaction that would resolve the company’s operational and financial challenges.
That’s a fancy legal way to say that the company hopes to find an operator that will keep the On the Border brand alive.
“At the Debtors’ direction, Hilco approached interested parties to secure astalking horse bidder for the sale of the Debtors’ assets pursuant to Section 363 of the Bankruptcy Code. In total, during the sale process, Hilco contacted 273 strategic and financial potential bidders to serve as a potential stalking horse bidder, of which 31 ultimately negotiated confidentiality agreements and were provided a confidential information memorandum,” according to the bankruptcy filing.
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No stalking horse bid agreement has been signed, but the company expects to share one “in the coming days.” That’s expected to be OTB Lender, LLC, an affiliate of Pappas Restaurants, Inc., which has loaned the company $10 million under a debtor-in-possession agreement.
“Founded in 1982, On The Border is known for its sizzling mesquite-grilled fajitas, award-winning margaritas, house-made salsa, and endless chips and salsa. With 80 restaurants in the U.S. and internationally, it’s a favorite destination for fresh Tex-Mex food and vibrant good times,” the company shared on its website.
