A group of Fat Brands lenders is objecting to the company’s sale, arguing that the winning credit bid for the owner of Round Table Pizza, Fazoli’s and several other chains doesn’t go far enough to address management fees unpaid before the bankruptcy was filed.
352 Capital and Wilmington Savings Fund Society are opposing a proposed order that would sell the bulk of Fat Brands, outside of Twin Peaks, in a trio of deals, mostly involving the conversion of debt into equity.
The lenders in court filings argue that $10.8 million in management fees connected with the company’s securitization financing should be paid before other forms of debt.
In a bankruptcy process, creditors are paid based on a priority status. Secured debt is typically tied to collateral and has priority over other forms of debt in a bankruptcy process.
Fat Brands filed for bankruptcy earlier this year with $1.5 billion in debt, most of which was owed to holders of bonds connected with a series of securitized financing structures. The company operated 16 restaurant chains.
Most of those chains, including Round Table Pizza, Fazoli’s, Johnny Rockets and others, are being sold in a credit bid to an as-yet-named group of the company’s lenders. Hot Dog on a Stick, meanwhile, is being sold to a Las Vegas company for $8 million. Elevation Burger is being sold to a company out of Kuwait for $2.5 million.
Twin Peaks, which is not subject to the more recent objection, is being sold in a separate credit bid to another group of lenders. Smokey Bones, the barbecue chain, has been shut down.
A bankruptcy court must approve these deals. A hearing on the issue is set for later this week.
The identities of the buyers of Twin Peaks and Fat Brands are not known, though the objection filed late last week indicated that the buyer of Fat Brands provided some of the lending to get the company through the bankruptcy process.
According to the court filing, the credit bid for Fat Brands converts various forms of debt into equity, including bankruptcy financing as well as much of its debt from before the bankruptcy filing.
The bid does not include a cash infusion to fund other obligations, notably the management fees. The lenders argue that those fees should be paid before the bankruptcy financing or the other obligations that are being converted into equity.
They also argue that cash from the sales of Elevation Burger and Hot Dog on a Stick should account for those fees in those deals.
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