Buca di Beppo, an Italian-style casual dining chain, received approval today (7 August) for interim access to USD 5.8m debtor-in-possession (DIP) financing, despite a bankruptcy court judge calling it the “highest interest rate I’ve seen on a DIP in all my years.”

Judge Stacey Jernigan of the US Bankruptcy Court for the Northern District of Texas approved the interim DIP financing and access to cash collateral at the first day hearing, along with other motions allowing the company to pay employee wages, insurance, taxes and vendors.

Counsel for Buca said the company needed immediate access to the 5.8m funding to pay for business operations such as employees’ salaries, tax and insurance bills and customer programs. Counsel added that access to cash collateral is also critical to run an upcoming sales process.

Buca’s lawyers said the company explored nine other potential lenders, but ultimately decided the offer from Main Street, a prepetition lender, was the best option. The DIP includes USD 5.8m interim access and USD 12.1m on an upcoming final order.

The terms also include a roll up of USD 5m of prepetition protective advances. Buca’s counsel said this money was used before the company declared Chapter 11, and funded critical business operations that helped it avoid a full Chapter 7 liquidation.

The DIP features a 15% interest rate, plus an additional 2% for a default rate. Also, the terms include a 3% upfront commitment fee on only new money. With the USD 5.8m interim approved financing, that amounts to about USD 174,000, with the potential for a maximum of USD 350,000 upon final order.

Judge Jernigan said “while it’s pricey with 15% interest, it is the best game in town, and given the precarious situation of the debtor and lack of collateral, this is fair and reasonable.”

CRO William Snyder added that rising interest rates, coupled with the high risk lenders face when dealing with bankrupt restaurants, have left the debtors with less leverage in negotiations.

“It’s a high rate, but considering the market and availability of money, and the risk involved in this loan, it’s probably fair,” he said.

No objections were raised during the court hearing to the motion for DIP financing and access to cash collateral. Judge Jernigan set a second day hearing for 29 August.

Buca filed for Chapter 11 on 4 August, citing severe operational disruptions and limited customer demand caused by the COVID-19 pandemic. Despite closing underperforming locations and implementing cost-saving measures, the company could not sustain operations and sought financial support from Main Street to facilitate a sale of the enterprise.