(Bloomberg) — Franchise Team Inc., the landlord of manufacturers together with the Diet Shoppe, Good friend’s House Furniture and Puppy Provides Plus, filed for chapter coverage after months of losses and turmoil surrounding its backer B. Riley Monetary Inc. Maximum Learn from Bloomberg The corporate, often referred to as FRG, filed underneath Bankruptcy 11 in Delaware, checklist virtually $2 billion of debt, in line with court docket paperwork. Bloomberg Information, bringing up folks with wisdom of the topic, reported overdue Saturday that FRG used to be getting ready at hand keep an eye on to lenders together with HPS Funding Companions after months of negotiations with the gang over a restructuring. FRG stated in a observation it has struck a handle lenders that personal maximum of its senior debt. Beneath the proposal, which should be licensed via a chapter pass judgement on, supporting lenders have agreed to switch out first lien debt for 100% of the fairness within the reorganized industry. The corporate has been on the heart of turmoil surrounding Los Angeles-based B. Riley, the funding and brokerage company that helped prepare a $2.8 billion buyout of FRG ultimate yr. The deal used to be led via founder and then-Leader Govt Officer Brian Kahn. B. Riley stocks fell 10% in New York premarket buying and selling after the corporate introduced it’s going to wish to take an extra impairment of $120 million on its fairness funding within the guardian unit of FRG and a mortgage to Kahn. Kahn’s Buyout Simply months after FRG’s debt-fueled buyout via Kahn, the founder stepped down from his CEO place amid a felony investigation into his alleged position in a securities fraud case tied to the cave in of defunct hedge fund Prophecy Asset Control. Hassle at FRG sped up as its manufacturers struggled to accomplish as projected, compounded via maturities on its debt. Kahn has categorically denied wrongdoing or any wisdom of misdeeds via the managers of Prophecy, and stated he used to be amongst those that had been defrauded because of Prophecy’s loss of life. “FRG’s chapter is a confluence of occasions that in the end derailed our unique funding thesis,” B. Riley co-founder and Chairman Bryant Riley stated in an electronic mail to staff. “Sadly, the funding used to be devastated via the precipitous decline in client spending within the markets served via the FRG manufacturers, and the fallout and uncertainty from the Prophecy scandal and the comparable federal investigation into Brian Kahn.” Tale Continues The gang offered its Sylvan Studying industry in February, however different conceivable disposals had been hampered via the allegations involving Kahn, FRG’s leader restructuring officer David Orlofsky stated in a court docket submitting. That intended “Franchise Team may just now not deleverage its stability sheet.” FRG stated Sunday that the primary lien lender crew agreed to give you the corporate with $250 million in Bankruptcy 11 financing. The financing, in conjunction with money already available, will give you the industry “with plentiful liquidity to deal with operations throughout its companies and satisfy go-forward commitments to staff, consumers, distributors, franchise companions, and different stakeholders,” in line with the observation. The corporate will nonetheless marketplace its industry in Bankruptcy 11 to make sure its belongings are offered for up to conceivable. As a part of the restructuring, FRG stated it has determined to wind down bargain store American Freight and can begin retailer last gross sales on Nov. 5. Beginning in 2018, Kahn had used a sequence of acquisitions to create FRG with monetary backing from B. Riley. In ultimate yr’s buyout, B. Riley took a 31% stake in FRG and likewise loaned about $200 million to Kahn, together with his stake in FRG used as collateral. Nomura Holdings Inc. additionally helped prepare the FRG deal ultimate yr via offering a $500 million time period mortgage to B. Riley. The Tokyo-based lender won stocks in FRG and the mortgage as collateral in conjunction with different belongings, Bloomberg up to now reported. B. Riley stated it’s in compliance with phrases of the Nomura mortgage, with the expectancy it’s going to be paid right down to $125 million via the tip of the month. A spokesperson for the Eastern financial institution declined to right away remark. “In spite of the unfavorable headlines, we’re in some distance higher form than other people give us credit score for,” Riley stated in his electronic mail, pronouncing B. Riley may have the capital to go back to expansion. The case is Franchise Team Inc., 24-12480, in the United States Chapter Courtroom for the District of Delaware. –With the aid of David Voreacos, Jill R. Shah, Janine Phakdeetham, Donal Griffin and Dana El Baltaji. (Updates with feedback from B. Riley chairman and Kahn, beginning within the 7th paragraph.) Maximum Learn from Bloomberg Businessweek ©2024 Bloomberg L.P.
