Fat Brands’ lenders are demanding immediate payment of nearly $1.3 billion in debt, sending the future of the Beverly Hills, California-based restaurant chain collector in doubt and its stock plunging.
UMB Bank, the trustee overseeing the company’s securitized financing structure, earlier this week sent an “acceleration notice” to four Fat Brands subsidiaries created to borrow the funds, demanding immediate payment on the company’s bonds.
Fat Brands, which revealed the notice in a Securities and Exchange Commission filing on Friday, said it does not have the funds on hand to pay all that debt.
The payment demand comes after UMB declared Fat Brands in default on its debt after the company did not have sufficient funds to make its quarterly bond payment last month.
Fat Brands’ stock, which was already down 80% so far this year, plunged another 40% in after-hours trading on Friday. Twin Peaks, the Fat Brands-controlled casual-dining chain, plunged more than 15%. Both recovered on Monday, though shares at Fat Brands were still down 5%.
According to the filing, “there has been no foreclosure on the collateral” on its debt, “but the company cannot provide any assurance that will not occur.” The company also said that it is in discussions with its bondholders on a refinancing, restructuring or other transactions, “but cannot provide any assurances that it will reach an agreement.”
Fat Brands went on a buying spree in 2020 and 2021, acquiring nearly $1 billion in restaurant chains including Global Franchise Group, the owner of brands like Hot Dog on a Stick and Round Table Pizza, along with Fazoli’s, Twin Peaks and Johnny Rockets.
To make these deals, the company used a complicated financing instrument known as a whole business securitization, in which companies use their cash-generating assets to back bonds. That enables companies to reduce the cost of debt. Securitizations are popular financing instruments in the restaurant industry, particularly among franchised companies.
In the case of Fat Brands, securitization financing enabled the company to go from acquiring low-end restaurant chains for a few million dollars to making several, large-scale deals in rapid succession.
Since then, however, several things have taken place that hurt Fat Brands’ financials. The company spent much of the past three years in legal limbo after the company and its CEO, Andy Wiederhorn, were charged with tax fraud. Those charges have since been dropped.
Yet the company itself has struggled with weak sales across its restaurant chains and financial losses. Same-store sales at its restaurant chains collectively declined 3.5% last quarter, its eighth straight decline. The company also reported a loss of $58 million.
Earlier this year, Fat Brands missed a payment to a marketing firm, leaving one of its concepts, Round Table Pizza, without advertising for several months. Earlier, franchisees of Hurricane Grill and Wings accused the company of raiding their marketing fund.
Fat Brands earlier this month said it has suspended its dividend, though it is still paying dividends on preferred shares. It also said it plans to raise equity from Twin Peaks in a secondary stock offering, which had been delayed by the government shutdown. It would use those funds to pay down debt.
Fat Brands is the latest company that used securitization financing to face major financial problems. Two major chains, TGI Fridays and later Hooters, filed for bankruptcy.
UPDATE: This story has been updated to provide a current stock price.
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