Midtown mainstay Babalu's owner seeks buyer after chain declares bankruptcy

Babalu’s owner will look for a buyer after the restaurant chain, a mainstay in Memphis’ Overton Square, filed for bankruptcy.

Babalu Tapas & Tacos, owned by Eat Here Brands LLC of Roswell, Georgia, will keep its casual eateries open as it steers a reorganization plan through federal bankruptcy court in Atlanta.

The reorganization could lead to a new buyer or the current owners might stay in place and raise a new round of money for operations, Ned Lidvall, Eat Here Brands chief executive officer, said Friday.

Eat Here investors said the bankruptcy filing on Wednesday traces to real estate issues in other states and does not signal that consumers are spending less in Memphis; Birmingham, Alabama; Jackson, Mississippi; and the other cities the firm operates in.

The company was founded in 2011 by high-profile restaurateurs also known for Memphis’ upscale Amerigo, Char and Interim restaurants.

Babalu’s arrival in Overton Square in 2014 was regarded as one of the key points in the renaissance of the once-faded and now thriving Midtown entertainment district.

The Midtown eatery followed the original restaurant in Jackson, Mississippi. The chain grew to nine Babalu restaurants throughout the Southeast, including an East Memphis location. The company since has closed three restaurants.

The expansion was financed in part by investors in Dallas, Memphis, Nashville and Jackson, Mississippi, who rank now among the largest unsecured creditors. This means Eat Here Brands has no legal obligation to repay the investors in bankruptcy.

The largest unsecured creditor identified in the bankruptcy filing is Irby Investments. The Nashville firm claims $187,500 in unsecured debt. Next largest is Roswell general contractor SAR & Associates, owed $178,006, followed by Memphis food and restaurant supplies broker Sysco Overton, owed $139,366.69. Identified separately on the creditor’s list is Sysco Memphis, owed $93,644.41.

“We are targeting for this to be a relatively short case,” Lidvall said, noting Eat Here Brands could emerge from bankruptcy by November free of the financial troubles. This could make the chain an attractive acquisition or, as a separate course, the firm could raise money from investors and borrow from lenders.

Lidvall said he will soon begin the process of singling out possible buyers and identifying new sources of investment capital. He said those are two courses open to the firm now and either strategy is possible.

Eat Here Brands investors say financial burdens were made clear months ago. Two leases were obtained for restaurants, but the restaurants were never opened, draining cash at time poorly performing Babalu locations were closed including at Chapel Hill, North Carolina, and Lexington, Kentucky.

“This brand, when well operated and well positioned, is very competitive,” Lidvall said.

The chain, which originated in 2011 as Babalu Development LLC in Jackson, Mississippi, set out to raise $10 million.

The founders were Bill Latham, Mike Stack and Al Roberts, all notable restaurant entrepreneurs in Jackson, Mississippi, and Memphis, as well as Lidvall, the prior chief executive at separate times of the Friendly’s, O’Charley’s, On the Border and Rock Bottom restaurant chains.

Lidvall said he was appointed interim chief executive of Eat Here Brands two months ago.