Fat Brands has reached a broad settlement with lenders and creditors to settle multiple disputes, paving the way for the company’s $1 billion sale next week, according to legal filings in the company’s bankruptcy late on Friday.
Under the agreement, creditors set to buy the bulk of Fat Brands’ chains out of bankruptcy have agreed to provide $8 million in cash to wind down operations once the sales are approved by the court, which is expected next week.
The agreement also establishes a liquidation trust that could pursue legal claims against Fat Brands’ founder and former CEO, Andy Wiederhorn as well as his family, according to court filings.
Court documents provide some legal protection to corporate officers who ran Fat Brands during the bankruptcy process, but Wiederhorn and family members are explicitly exempted.
John DiDonato, chief restructuring officer for Fat Brands, in a court filing called the settlement “a prudent compromise that affords substantial benefits to the debtors, their estates, creditors and stakeholders.”
He also called it “the product of hard-fought, good-faith, arm’s-length negotiations.”
DiDonato also noted that fighting a legal battle with creditors and lenders would be expensive and “unsustainable” given Fat Brands’ liquidity challenges. He also said that the outcome of the litigation would be uncertain and could have delayed the sale, which would have been “detrimental to the debtors’ estates.”
The settlement, he said, came as Fat Brands’ Chapter 11 bankruptcy was “on the one-yard line.”
The company appeared headed for sale late last month. Fat Brands in March reached a key settlement with lenders to fund the company through the process. That deal led to the departure of Wiederhorn.
And then late last month, Fat Brands selected multiple bidders following an auction. A Kuwait company was selected as the bidder for Elevation Burger for $2.5 million. And a Las Vegas company won the bid for Hot Dog on a Stick at $8 million. The rest of the company is going to lenders holding $990 million worth of debt in two separate deals, one for Twin Peaks, and one for the rest of Fat Brands, including Round Table Pizza, Fazoli’s, Johnny Rockets, Great American Cookies and other chains.
But conflict emerged over management fees that are not accounted for in the sale. Some lenders filed an objection. And then unsecured creditors filed a lawsuit challenging the sale process, citing $195 million in transfers.
A hearing set to approve the sale has been delayed multiple times.
One key point of contention was that the sale left the estate without cash, effectively winding down the organization once the deals were complete without any hope of recovery for creditors.
Under the terms, the $8 million will establish a trust that could provide the estate with funds to go after Wiederhorn, who owned Fatburger formed Fat Brands by acquiring numerous chains from 2017 through 2022.
His leadership was a major point of contention in the bankruptcy, with lenders pushing for his ouster early in the process and saying that he used the company “as his personal piggy bank.” They cited several controversial moves, including a $47 million forgiven loan from the company that would become the focal point of a federal tax investigation that has since been dismissed.
They also cited pre-bankruptcy retention bonuses given to Fat Brands executives, two of whom are his sons. Fat Brands, however, had called the lenders’ criticism “a personal attack.”
Yet, in establishing the trust, Fat Brands is establishing a mechanism for unsecured creditors to get some repayment, pending the outcome of any potential legal action.
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