A bankruptcy would make the Melville, New York-based company the latest of a string of restaurant chains, including Fuddruckers and Charlie Brown's Steakhouse, to succumb to the economic downturn and a drop in consumer spending.
Struggling with debt, Sbarro had disclosed in January that it hired bankruptcy and restructuring advisers and lawyers.
Its lenders include Bank of America Corp and private equity owner MidOcean Partners, which purchased the company through a more than $400 million buyout in 2007.
Sbarrois in talks with hedge funds holding its senior debt to obtain $35 million of debtor-in-possession financing so it can keep operating while in bankruptcy, the Journal said. Talks remained fluid, and an agreement could still fall apart, it added.
A spokesman for Sbarro said the company continues to work on restructuring its debt and expects to operate normally during that process. (Reporting by Dena Aubin; editing by Carol Bishopric, Dave Zimmerman)
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