Kids food and entertainment chain Chuck E. Cheese filed for Chapter 11 bankruptcy protection as it was unable to contend with its business being forced to close throughout the COVID-19 pandemic.

It plans to use the filing as an opportunity to reorganize its balance sheet in consultation with its lenders, and it intends to continue reopening its restaurants. About half of its locations have already reopened.

Kids playing on arcade rides

Image source: Chuck E. Cheese.

A struggle even before the pandemic

While many restaurants were able to survive the coronavirus outbreak because they were able to switch to a takeout or delivery model, that didn't apply to privately held Chuck E. Cheese, which is owned by Apollo Global Management (NYSE:APO).

It's the experience of being in a Chuck E. Cheese restaurant with its game arcade and animatronic entertainment that has made the chain so successful.

The same applies to Dave & Buster's Entertainment (NASDAQ:PLAY), which wasn't performing all that well before the pandemic. Its stock has quadrupled from the depths it hit at the outset of the pandemic, but that's only because investors expected it to go under too. Shares still sit some 70% below where they were trading before the outbreak.

Chuck E. Cheese has struggled as well, and a planned return to the public markets last year was ultimately scrapped. 

While it is reopening restaurants and planning to operate normally, whether business will return right away is doubtful as parents may be leery of allowing their kids into the spaces to play and eat, even if social distancing rules are followed.

The chain handed out lucrative bonuses to top executives just weeks before the bankruptcy filing as purported retention payments to keep them onboard. CEO David McPhillips received a $1.3 million bonus.