• Red Lobster has filed for Chapter 11 bankruptcy protection, continuing the process to shrink its footprint and find a buyer, the company said in a statement.
• The seafood chain's CEO blamed a "difficult macroeconomic environment, a bloated and underperforming restaurant footprint, failed or ill-advised strategic initiatives, and increased competition."
• A disastrous "endless shrimp" promotion and a lease-back agreement orchestrated by Red Lobster's previous private equity owners Golden Gate Capital contributed to its demise.

Red Lobster has filed for Chapter 11 bankruptcy protection, continuing the process to shrink its footprint and find a buyer, the company said in a statement.

The seafood chain also said it has a so-called stalking horse bid from its existing lenders to buy the company, unless a higher bid comes along.

CNBC reported last month Red Lobster was seeking a buyer, weighed down by significant debt and long-term leases. The company recently appointed a restructuring expert — Jonathan Tibus, a managing partner with advisory firm Alvarez & Marsal — as its CEO.

In a court filing, Tibus blamed a "difficult macroeconomic environment, a bloated and underperforming restaurant footprint, failed or ill-advised strategic initiatives, and increased competition within the restaurant industry" for the chain's need to file for Chapter 11 protection.

The chain's real estate portfolio is also a "huge problem" created, in part, by Red Lobster's former owners Golden Gate Capital, a source familiar with the company told CNBC. When Darden Restaurants sold Red Lobster to the private equity firm in 2014, it funded the $2.1 billion acquisition partially through a $1.5 billion sale-leaseback agreement, the companies said previously.

Under the terms of the arrangement, the majority, if not all, of Red Lobster's locations were sold off, and the chain had to start paying rent on properties it once owned while Golden Gate reaped the profits, the source said. At the time, it was tough to predict that Red Lobster would see sales drop as much as they have. Given how much revenue has fallen, the chain can no longer afford those leases.

Red Lobster currently operates 551 locations in the U.S. and 27 restaurants in Canada. The chain closed 93 underperforming locations on May 13 and is asking the bankruptcy court to reject 108 of its leases to further slim down its footprint.

The company has 36,000 employees, most of whom work in part-time roles.

Orlando, Florida-based Red Lobster has assets between $1 billion and $10 billion and estimated liabilities of $1 billion to $10 billion, according to the bankruptcy filing. Its largest creditor is distributor Performance Food Group, which is claiming the company owes it $24.4 million.

"This restructuring is the best path forward for Red Lobster," Tibus said in a statement late Sunday. "It allows us to address several financial and operational challenges and emerge stronger and re-focused on our growth. The support we've received from our lenders and vendors will help ensure that we can complete the sale process quickly and efficiently while remaining focused on our employees and guests."

Red Lobster was founded in 1968 and purchased by General Mills two years later. In 1995, General Mills spun off its restaurant division into Darden, which also housed sister chain Olive Garden.

Nearly two decades later, Darden sold Red Lobster to Golden Gate. In 2016, Thai Union Group, a seafood supplier and one of the chain's longtime vendors, bought a stake in the company. In 2020, Thai Union, members of Red Lobster management and investors using the alias Seafood Alliance bought out Golden Gate's remaining stake in the chain.

Although Red Lobster survived the pandemic, its business has struggled since then. The chain's traffic has tumbled about 30% since 2019, according to the bankruptcy filing.

The company's longtime CEO, Kim Lopdrup, also retired in 2021, beginning a revolving door of CEOs that left the chain with little stability to turn around the flailing business. Tibus is Red Lobster's third chief executive in as many years.

In fiscal 2023, the company reported a net loss of $76 million. Some of that loss was driven by its disastrous "endless shrimp" promotion. Last year, it changed the offer from once a week to daily in an effort to boost slower sales in the second half of the year. But the offer juiced business too much as diners sought cheap deals, pressuring Red Lobster's bottom line.

According to a court filing, the ill-conceived promotion's actual aim may have been more about boosting Thai Union's own sales. Red Lobster got rid of two of its shrimp suppliers under interim CEO Paul Kenny's leadership, leaving Thai Union as its sole supplier of the crustacean. That decision led to higher costs for Red Lobster, according to the filing. The debtors are also investigating if Thai Union and Kenny pushed excessively for in-store promotions, which often led to major shortages of shrimp.

Correction: Performance Food Group is claiming Red Lobster owes it $24.4 million. An earlier version misstated the figure.