Noah’s Bagel Seeks Bankruptcy Protection; 74 Stores Closed

Struggling Einstein / Noah Bagel Corp., the country’s largest bagel chain, filed a Chapter 11 bankruptcy petition Thursday and shuttered 74 of its stores around the country in an attempt to unburden itself from a mountain of debt.

Twenty Noah’s Bagels stores were closed Thursday morning from Santa Barbara to San Diego, just less than half of its 50 Southern California locations. Although the company says some of the estimated 750 employees affected nationwide will be relocated to other stores, many were terminated without notice.

Einstein / Noah Chief Executive Robert Hartnett said the company, which was delisted from the Nasdaq exchange this year, should emerge from bankruptcy later this year after a restructuring. He said that the firm has obtained interim financing so it can continue operations and that no additional closings of its remaining 465 stores are planned.

Under the terms of the reorganization plan filed with the bankruptcy court in Phoenix, the company’s bondholders, which are owed $125 million, would own an 89% stake in the company. Its minority equity holders--a group of private investors--would own an 11% stake, and common shareholders would receive warrants for 2% of the company.

At the peak of the low-fat craze of the mid-1990s, the chain was opening as many as 200 locations a year and racking up mountains of debt that analysts say it could never pay off.

“This is about a single-issue, fixing-our-balance-sheet problems,” Hartnett said. “The business itself is as healthy as it has ever been.”

However, analysts say bagel shops around the country are struggling as coffee bars, doughnut shops and even supermarket bakeries have begun offering freshly baked bagels. Noah’s had already closed 14 less profitable locations last year, including a Santa Monica location.

Einstein / Noah operates in 29 states under both the Einstein Bros. and Noah’s New York Bagels names.