Pappas Restaurants Acquires On The Border in Bankruptcy Sale

Pappas Restaurants Acquires On The Border in Bankruptcy Sale.

Pappas Restaurants, the family-run Houston giant behind brands like Pappasito’s Cantina and Pappadeaux Seafood Kitchen, emerged as the winning bidder for On The Border Mexican Grill & Cantina.

While most headlines focus on the fajitas and frozen margaritas, this story has deeper implications for bankruptcy attorneys and corporate restructuring professionals watching the retail and hospitality sectors.

It’s a case that speaks volumes about how strategic buyers can capitalize on distressed assets while navigating the often complex landscape of Chapter 11.

A Brand on the Brink

Founded in 1982, On The Border grew into one of the most recognizable Tex-Mex brands in the country. But rising operational costs, staffing shortages, and shifting consumer habits took their toll.

By March 2025, the Dallas-area company filed for Chapter 11 bankruptcy protection in federal court in Atlanta.

Even with 80 locations still in operation across the U.S. and internationally, the company faced mounting pressure from creditors and couldn’t weather the financial headwinds alone.

That’s when Pappas stepped in.

Through an affiliate called OTB Hospitality LLC, Pappas Restaurants provided $10 million in debtor-in-possession (DIP) financing.

That allowed On The Border to continue operations during bankruptcy proceedings and gave Pappas a strong seat at the table when it came time to sell.

Legal experts watching the case say it’s a textbook example of how DIP financing can be used not just to support a struggling business, but also to position a buyer favorably during a Section 363 asset sale.

The bankruptcy court ultimately approved Pappas’ offer, paving the way for the chain’s integration into a growing portfolio that already spans over 100 restaurants across eight states.

What It Means for Bankruptcy Law and Business Strategy

The On The Border acquisition is more than just another restaurant merger. For those in the legal field, it underscores several recurring themes in post-pandemic bankruptcy practice:

• The Value of Timing: Pappas acted early with DIP financing, gaining leverage without rushing the sale process.

• Brand Equity Still Matters: Even distressed companies can retain brand value that attracts serious bidders.

• Section 363 Sales Are Powerful Tools: These court-approved sales remain one of the cleanest, fastest ways to transfer assets free and clear of liabilities when executed properly.

This deal also reflects a growing trend in hospitality: smart operators aren’t just building new restaurants,  they’re acquiring troubled ones with strong bones and reimagining their potential.

Looking Ahead

If the deal is finalized as expected, Pappas Restaurants will inherit a nationally recognized brand with room to grow , particularly in regions like Houston where On The Border has yet to make its mark.

For legal professionals, the case serves as a timely reminder that even in industries where margins are thin and volatility is high, strategic legal and financial planning can lead to outcomes where everyone: debtors, creditors, and buyers - walks away with something of value.

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