Below is our initial take on recent bankruptcy-related developments:
Fat Brands, burdened with heavy debt, declares bankruptcy | Restaurant Business
The owner of Fatburger, Twin Peaks, Johnny Rockets, and Nestle Toll House Café—among other brands—has declared bankruptcy after accruing $1.45 billion in securitized debt and failing to come to an agreement with bondholders.
S&K Take: The ultimate owner of some of the finest culinary institutions worldwide hit bankruptcy court this week in the Southern District of Texas. Fat Brands franchises a litany of restaurant brands, including Fatburger, Ponderosa and Bonanza Steakhouses, Johnny Rockets, and Hot Dog on a Stick (who could forget Hot Dog on a Stick), among others. Fat also directly owns Twin Hospitality, which operates 150 locations that include Twin Peaks (think Hooters knock-off), Fazoli’s, Smokey Bones and some Fatburger locations. The Debtors generated approximately $86.3 million in royalties and $5.7 million in franchise fees through the franchises, along with $389.4 million in revenues through the directly owned locations. As for the bankruptcy, the Debtors’ capital structure is the story. The Debtors have 4 whole business securitization vehicles, which have issued about $1.4 billion in notes in the aggregate. There is a fifth securitization, which is a securitization within a securitization. The “Resid” securitization has a pledge of future management fees generated by management of the other four silos. What will they think of next? The ad hoc group of securitization noteholders isn’t happy with the case. They have filed a motion seeking the appointment of a chapter 11 trustee, alleging that controlling shareholder Andrew Wiederhorn engaged in the “systematic looting of company profits.” The AHG also objected to the Debtors’ request to use cash collateral, but ultimately relented, granting the Debtors’ a 4-week reprieve. In that time, the Debtors and the AHG will be mediating with Judge Isgur to see if there is a consensual path forward. Lots of wood to chop here, so we will keep an eye on this case.
Amazon, Chanel Appointed to Represent Saks' Creditors in Bankruptcy | Reuters via US News Money
The 10-member committee also includes Gucci maker Kering and Louis Vuitton parent company LVMH, as well as a labor union representing Saks employees.
S&K Take: There hasn’t been a lot of case determinative activity in the Saks case since we last wrote about it a few weeks ago. The Court granted access to the proposed DIP financing, the Debtors are evaluating the sale of certain non-core assets, such as SO5 Digital, with some Saks OFF 5th and Neiman Marcus Last Call stores getting liquidated, and certain landlords are seeking to take back discrete locations where the lease was purportedly terminated pre-petition, but other than that nothing crazy. That might change in the near term, with a very well-heeled 11 member UCC being appointed. The UCC includes Chanel, Amazon, LVMH, and Zegna among others. Early this morning, Computershares Trust was added (in its capacity as trustee for the 11% senior notes due 2029). You might recall that Amazon was a vocal opponent of the DIP at the first day hearing, so it is possible that we see a very aggressive UCC in these cases.
Ford, GM reportedly discussing funding for bankrupt First Brands | Yahoo Finance
Ford and General Motors have begun discussions over a financing deal that would help First Brands Group with liquidity as they navigate operations under Chapter 11 protection.
S&K Take: The First Brands case has been busy, although not necessarily in a good way. We can start with Patrick and Edward James, the former CEO and his brother, who have been indicted on essentially every fraud charge that you can imagine. The brothers were arrested in Ohio yesterday, and the case will proceed in the SDNY. This is layered on top of other civil actions that have already been filed. The indictment alleges that the brothers operated a fraudulent scheme to enrich themselves from 2017 to 2025.
In the bankruptcy case, the Debtors are out of DIP funds. You know you are in trouble when the Examiner asks that you escrow his $7 million professional fee budget because he is concerned over administrative insolvency. On the heels of that request, the Debtor did secure additional financing from a group of OEMs including Ford, General Motors, Harley-Davidson, Polaris Industries, Audi, FCA US LLC, Honda, International Motors, Nissan North America, Mercury, Volkswagen and BMW. Those entities would provide $48 million as a prepayment for parts. The amount would finance limited operations and production at certain businesses critical to those manufacturers. The Court also entered an order approving mediation in the case with none other than the busiest man in showbusiness, Judge Isgur. Judge Isgur is currently mediating, at the least, the Office Properties, Fat Brands, and now First Brands case. That is a workload.
