FAT Brands pushed to the brink by legal storm and mounting debt

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In August 2020, FAT Brands — past known arsenic the genitor institution of Fatburger, Hurricane Grill & Wings, and Ponderosa and Bonanza Steakhouses — kicked disconnected its acquisition spree with the acquisition of Johnny Rockets. Five years and 14 marque acquisitions (plus 1 sale) later, the institution has grappled with galore ineligible and fiscal obstacles, including an SEC investigation, a precocious dropped national probe into alleged fiscal fraud, 2 franchisee lawsuits accusing the institution of mismanaging funds, and implicit $1.26 cardinal successful indebtedness that has been declared instantly due. This week, the institution faced the menace of being delisted from the Nasdaq banal speech owed to its banal terms consistently remaining beneath $1.

FAT Brands disclosed successful an SEC filing that it does not person capable liquidity to conscionable its indebtedness obligations, acknowledging that bankruptcy could beryllium connected the horizon. Along with implicit $1.26 cardinal successful debt, FAT Brands besides reported successful its astir caller 10Q filing that the institution ended the 4th with lone $2 cardinal successful currency and $10 cardinal successful restricted cash. 

Recently, FAT Brands CEO Andy Wiederhorn spoke astatine the ICR league successful Orlando astir the company’s analyzable indebtedness situation. He explained that the indebtedness is not guaranteed by the genitor institution arsenic a full and is alternatively tied to the idiosyncratic brands, involving aggregate layers of investors. This complexity could instrumentality important clip to disentangle, and indebtedness restructuring mightiness beryllium a agelong mode off. 

The company’s fiscal troubles are lone portion of a larger story, arsenic mounting ineligible challenges and franchisee unrest rise superior questions astir the aboriginal of FAT Brands. 

Marketing mismanagement lawsuits

With the institution dangerously debased connected liquidity, franchisees are seeking answers. On Nov. 24 — the time earlier FAT Brands received the announcement of indebtedness acceleration — the Round Table Owners’ Association filed a suit against Round Table Franchise Corporation (RFTC), a subsidiary of FAT Brands, alleging breach of declaration and misuse of advertizing funds with the California Superior Court.

According to the lawsuit, the RFTC failed to behaviour required audits of the brand’s selling money for the years 2022-2024, arsenic outlined successful franchise agreements. It besides claims the institution withheld Pepsi rebates that should person been distributed to franchisees. According to the franchisee group, these actions person caused important fiscal harm, and they are seeking ineligible enactment to compel RFTC to supply grounds of fiscal audits and connection compensation to franchisees impacted by the alleged mismanagement of selling and advertizing funds.