BC Hospitality Group, parent of vegan fast-casual By Chloe, selected its DIP lenders—a consortium group led by QOOT International—as its stalking horse bidder.

The other firms are Kitchen Fund, Lion Capital, and Bain Capital Double Impact Fund. Under the agreement, the group would acquire 100 percent equity in By Chloe in exchange for a $3.25 million credit bid, which is equal to the group’s DIP funding. The firms would also assume up to $150,000 in ongoing claims from creditors.

A stalking horse bid sets the bar for other qualified bidders. In addition to entering the stalking horse bid agreement, Ankura Consulting Group, BC Hospitality’s asset sale advisor, contacted 140 interested parties and executed non-disclosure agreements with 23 of them. The bid deadline is Thursday, and the auction is scheduled for March 1. 

After opening in July 2015, By Chloe grew in popularity and expanded to 14 stores in New York City, Boston, Los Angeles, and Providence, Rhode Island, with construction plans in the initial stages for two additional restaurants. The company also issues licenses for third parties to operate stores in London and Toronto.

However, the arrival of COVID severely disrupted operations in late February and early March of last year. Three units have remained closed since late March 2020 and the others are operating at reduced capacity. By Chloe was forced to furlough or lay off more than 50 percent of its employees. Additionally, monthly revenue has dropped by roughly 67 percent since February 2020. As a result, BC Hospitality filed bankruptcy in December.

Before the bankruptcy case began, BC Hospitality has been working through litigation with By Chloe founder and former co-owner, Chloe Coscarelli. After being terminated in 2017, Coscarelli has sought 50 percent ownership in BC Hospitality.

The case went to arbitration in 2019, and an arbitrator ruled that Coscarelli’s ownership should be restored and that she should receive attorney fees of $2.3 million. The ruling is contingent on confirmation from a federal court judge. However, the litigation was stayed, or halted from proceeding, because of the bankruptcy case.

Coscarelli, who objected to the sales process, filed a motion to lift the stay and allow the federal judge to determine ownership rights. That motion was withdrawn, but both sides have agreed to go before the bankruptcy court and litigate the ownership dispute and whether BC Hospitality may sell the By Chloe trademark. The hearing is scheduled for Thursday morning.