TGI Fridays has lost control of many of the company’s management functions after the trustee overseeing its 2017 securitization financing declared an apparently rare “manager termination event,” a pair of bond rating agencies said this week.
According to Kroll Bond Rating Agency, the trustee, Citibank, terminated TGI Fridays as the manager of its whole business securitization. A backup manager, the consulting firm FTI Consulting, will take over certain management responsibilities until a permanent manager can be appointed. Many of these functions appear to be related to the chain's franchise and licensing businesses.
FTI will oversee the securitization, personnel decisions, collecting royalties, and certain advertising, marketing and administrative duties, among other things. Those responsibilities could also include “liquidating collateral if reasonably necessary,” Kroll said.
The agency said this was the first manager termination involving a whole business securitization, or WBS, since the financial crisis.
The issue is related to a form of financing TGI Fridays used in 2017. Under a whole business securitization, companies issue bonds secured by their future, cash-generating assets, such as royalties paid by franchisees.
The financing is popular among franchise restaurants, including such giants as Domino’s and Subway. The brand collector Fat Brands used a WBS to orchestrate nearly $1 billion worth of acquisitions in late 2020 and 2021.
Under such agreements, bondholders can step in when problems arise.
TGI Fridays has a $375 million security remaining from that 2017 WBS. Some of the debt was paid this year after the chain sold permanent retail licensing rights to Kraft Heinz. The company also paid other bonds in 2022, according to Kroll.
Bond rating agencies have downgraded the debt several times over the years amid challenges at the casual-dining operator, notably pressure on such chains from weak same-store sales and traffic.
The bond-rating agency Standard & Poor’s (S&P) said “several factors” led to the termination, notably a $2 million overpayment of a management fee from the securitization to TGI Fridays. The company has since repaid $228,000 of that overpayment, according to S&P.
The mistake was not detected until after TGI Fridays used those fees to pay off past-due accounts to some of its vendors, according to S&P.
The agency also said that TGI Fridays was withholding some royalties on sublicensing agreements and has been deferring a 4% royalty to be paid by its corporate locations.
TGI Fridays did not respond to a request for comment.
The news comes at a crucial time for the casual-dining chain, which has struggled in recent years as consumers have shifted toward limited-service options.
The chain’s U.S. system sales declined 15% last year, according to data from Restaurant Business sister company Technomic. The decline came from unit closures and from weaker average unit volumes.
TGI Fridays has been in decline domestically for years. It has shuttered half of its restaurants in the U.S. over the past decade and finished last year with 269 restaurants. Many, but not all, of those closures came in 2020. The company started 2024 by closing another 36 locations.
The chain currently operates 367 locations outside the U.S., though that number has declined over the past decade, too.
TGI Fridays was on the market and earlier this year reached a deal with its largest global operator, the U.K.-based Hostmore, for $220 million. But that acquisition has been delayed after TGI Fridays and Hostmore decided to change plans and sell all corporate stores to franchisees. Both Hostmore and TGI Fridays have deals in place to sell some stores for $40 million.
Hostmore also noted that both it and TGI Fridays are in discussions with lenders to use proceeds from the sale of corporate stores to pay off debt. But it also said it was looking at other options if the deal falls through.
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