MELVILLE, N.Y. — Sbarro, Inc., an Italian quick-service restaurant concept that filed for Chapter 11 bankruptcy protection on April 4, has filed a joint plan of reorganization and related disclosure statement with the U.S. Bankruptcy Court for the Southern District of New York. Under the terms of the proposed plan, Sbarro said it expects to reduce its debt by approximately 73%, or $295 million (from approximately $405 million to $110 million, plus any amounts funded under a new money term loan facility).

To achieve the debt reductions, Sbarro said it plans to complete several actions, including converting 100% of the outstanding amount of the $35 million post-petition debtor-in-possession financing into an equal amount of a newly issued $110 million senior secured exit term loan facility; converting approximately $173 million in prepetition senior secured debt held by the company’s prepetition first lien lenders into the remaining exit term loan facility and 100% of the common equity of the reorganized company (subject to dilution by shares issued under a management equity plan); and eliminating all other outstanding debt.

Once it emerges from Chapter 11, Sbarro said its prepetition first lien lenders would own substantially all of the company’s equity. Additionally, some of the company’s pre-petition first lien lenders have committed to provide Sbarro with an $18.6 million new money term loan facility to be used for general corporate and working capital needs following emergence, which will provide the company with sufficient liquidity at emergence. In addition, the company expects to generate additional cash from operations through the end of the year.

“The plan gives us a clear path to emerge from the bankruptcy process with significantly reduced debt and increased financial flexibility and liquidity,” said Nicholas McGrane, interim president and chief executive officer. “Sbarro continues to perform well, experiencing positive same-store sales and outpacing mall traffic in the first half of 2011. Despite a challenging economic environment, Sbarro remains a strong company with one of the most recognizable restaurant brands in the world. As we seek to implement our balance sheet restructuring, Sbarro’s restaurants will continue to operate in the normal course and without interruption and will be positioned to compete more effectively going forward.”

Sbarro said it intends to file a motion to approve bidding procedures and establish an auction process for interested parties to “top” the stalking horse proposal in the current plan while the Chapter 11 cases are still pending. The overbid process also will allow qualified bidders acceptable to a steering committee of the company’s first lien lenders to take advantage of a $110 million “stapled” financing option offered by certain of the company’s first lien lenders in support of any qualified overbid, Sbarro said.