Financing

Burger King wants a bankrupt franchisee to put its restaurants up for sale

The fast-food burger chain said it would not support a process in which operator Meridian Restaurants emerges from bankruptcy still owning its restaurants, joining with the franchisee's creditors in pushing for a sale.
Burger King bankruptcy
Burger King wants operator Meridian Restaurants to sell its locations. | Photo: Shutterstock.

Burger King this week asked a federal bankruptcy court to require franchisee Meridian Restaurants to put its restaurants up for sale, saying it would not support any process in which the operator retains ownership of the restaurants.

The Miami-based burger chain joined an earlier filing by unsecured creditors, including lenders, distributors and other vendors, to push for a sale of Meridian’s remaining 93 locations. A committee of those creditors said in a filing that “multiple parties” have approached Meridian or Burger King about a potential purchase of the restaurants, but Meridian did not discuss any potential deal.

Burger King in its filing said it would like Meridian’s restaurants, which are spread across several states, to be broken up and sold by geographic region.

The company recently adopted a policy limiting the number of restaurants franchisees can operate, “where appropriate,” to 50 locations. But it also wants those locations to be within a specific geography, preferably close enough for owners to be able to drive to each of their restaurants.

In Meridian’s case, Burger King would package 27 restaurants in Utah and Wyoming together, seven in Arizona, 16 in Montana, 25 in Minnesota and the Dakotas, 12 in Kansas and nine in Nebraska.

“If the debtors insist on continuing down an ill-fated ‘reorganization’ path that does not have the support of its major creditor constituencies, then they are free to do so at their own peril,” Burger King said in its filing. “However, such path should not be at the expense and exclusion of the major creditors in these cases.”

Meridian filed for Chapter 11 bankruptcy protection in March, the second major Burger King operator to do so this year, amid weak sales at the chain and rising food and labor costs. But while another operator, Toms King, was later sold in pieces, Meridian opted to reorganize under Chapter 11 bankruptcy protection so it could keep its restaurants.

Meridian operated 116 Burger king locations.

But signs of financial problems quickly emerged as the operator later closed 23 of its restaurants and suggested it could potentially close additional locations.

A committee of unsecured creditors also hinted that the operator remains on weak financial ground, saying that Meridian has a “short runway” to conduct a sale process and that any delay would cause “substantial harm” to those creditors.

As a franchisor, Burger King has a considerable say in the bankruptcy process. It is a substantial creditor. The company says it is owed $4.6 million, including $3.95 million in unpaid royalty and ad fund fees for the 93 open restaurants. Burger King argues that it will not approve Meridian’s franchise agreements unless that amount is paid.

The franchisor also can approve potential buyers of the restaurants in any sale process if they are to remain Burger King restaurants. Those restaurants would likely be more valuable if they were to remain Burger King locations in a potential sale process.

The company in its filing said it told Meridian it “would not support a scenario” in which Meridian retains ownership of the restaurants in an internal restructuring. Burger King “believes that the best outcome for all stakeholders in these bankruptcy cases is for the restaurants to be marketed and sold in an orderly sale process by geographic region to potential [Burger King]-qualified purchasers.” It added that a sale “is the only viable path” the company would support.

Burger King held a meeting with James Winder, the managing member of Meridian who appointed himself chief restructuring officer, on June 2. Winder apparently outlined a plan of reorganization in which he remained owner of a substantial number of restaurants.

But the franchisor said afterward that it was “steadfast in its position concerning the need for an immediate marketing and sale of the restaurants.”

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