Fast-casual restaurant chain Cosi and its subsidiaries filed voluntary Chapter 11 petitions in the U.S. Bankruptcy Court for the District of Massachusetts, initiating a process intended to preserve value and accommodate an orderly going-concern sale of its business operations.

According to a related 8-K filing, Cosi has obtained a $4.1 million term loan in post-petition debtor-in-possession (DIP) financing, which, subject to bankruptcy court approval, will provide the company with liquidity to maintain its operations in the ordinary course of business during the Chapter 11 process.

AB Opportunity Fund, AB Value Partners and one or more entities affiliated with Milfam II form the lender group providing the DIP. The DIP lenders or their designees have proposed to purchase substantially all of Cosi’s assets and, subject to bankruptcy court approval, would serve as the “stalking horse” in a sale process under Section 363 of the bankruptcy code.

The term sheet is non-binding and the proposed transaction is subject to, among other things, Cosi’s compliance with certain covenants. Cosi intends for such a sale, if completed, to ensure a smooth and swift transition of the business and operations to the DIP lenders or their designees, which would be supported by a stronger balance sheet due to exiting underperforming locations,

Notice of the proposed sale to the DIP lenders or their designees will be given to third parties and competing bids will be solicited. Cosi’s board of directors will manage the bidding process and evaluate the bids, in consultation with independent professional advisors and as overseen by the bankruptcy court.

“We worked very hard to avoid this step,” said Mark Demilio, Cosi’s chairman of the board. “With the advice and support of outside advisors, we’ve explored multiple paths, including raising capital through equity and/or debt in either public or private transactions, selling the company outside the bankruptcy process, selling certain assets of the company and other transactions to restructure the balance sheet or raise capital, while also focusing on attempting to improve sales, reduce costs and exit underperforming locations. It’s become clear that, despite the extensive efforts by the company, no such transactions are achievable at this time, that the company cannot continue to operate in its current financial condition and that the best alternative for the company and its creditors would be to accomplish a sale through the bankruptcy process.”

Prior to the Chapter 11 filing, Cosi closed 29 of its 74 company-owned restaurants. The 31 franchised locations are unaffected. The plan outlines a fast-track process that will allow Cosi to emerge from the restructuring under new ownership and with an improved financial position and stronger brand.

Mirick, O’Connell, DeMallie & Loungee is serving as legal counsel and the company will appoint a chief restructuring officer within seven to 10 days. Patrick Bennett continues to serve as interim CEO and Edward Schatz of The O’Connor Group continues to serve as interim CFO.