FRG files for Chapter 11 protection

January 2025 | DEALFRONT | BANKRPUTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

January 2025 Issue

Following months of losses and turmoil surrounding its backer B. Riley Financial Inc., US privately-held holding company Franchise Group (FRG) has filed for Chapter 11 bankruptcy in order to implement a restructuring support agreement (RSA).

According to court documents, FRG’s filing listed debts of almost $2bn. Franchised locations of FRG’s brands are not part of the Chapter 11 proceedings.

The company has been at the centre of disruption surrounding Los Angeles-based B. Riley, the investment and brokerage firm that helped arrange a $2.8bn buyout of FRG in 2024.

FRG intends the RSA to be a comprehensive solution to strengthen its capital structure and best position its leading brands – Pet Supplies Plus, The Vitamin Shoppe and Buddy’s Home Furnishings – for continued sustainable growth.

Moreover, the RSA contemplates the proposed equitisation of the first lien debt into 100 percent of the equity in the reorganised enterprise, which would substantially reduce FRG’s debt, enhance liquidity and strengthen the enterprise for the benefit of its leading brands and their stakeholders.

As part of the restructuring plan, the first lien lender group has committed $250m in debtor-in-possession financing which, subject to court approval and together with cash on hand, will provide FRG with ample liquidity to maintain operations across its businesses and fulfil go-forward commitments to employees, customers, vendors, franchise partners and other stakeholders of FRG.

“The plan to de-lever our balance sheet is a pivotal step forward in enabling our market-leading businesses to realise their full potential,” said Andrew Laurence, president and chief executive of FRG. “Each of our businesses has a demonstrated value proposition and provides great products and services to customers, which they will continue to do seamlessly during this process.”

As part of this strategy, FRG has determined to wind down furniture retailer American Freight (acquired by FRG in 2019 for $450m), which has struggled due to sustained inflation and macroeconomic challenges facing the large durable goods sector. It will be commencing store closing sales at locations nationwide and online on 5 November 2024.

FRG also intends to engage in a marketing process via court-approved bidding procedures, which will ensure that the company is maximising value and best positioning its operating businesses for long-term success as it pursues confirmation of the agreed-upon prearranged Chapter 11 plan. The plan and an explanatory disclosure statement has been filed with the bankruptcy court.

Founded in 2019, Delaware-based FRG is an owner and operator of franchised and franchisable businesses that utilises its operating and capital allocation philosophy to generate strong cash flow across its business platform. The company currently operates more than 2200 locations predominantly located in the US that are either company-run or operated pursuant to franchise or area developer agreements.

Serving as legal counsel to FRG are Willkie Farr & Gallagher LLP and Young Conaway Stargatt & Taylor, LLP, with AlixPartners serving as financial adviser and chief restructuring officer and Ducera Partners serving as investment banker. Paul Hastings LLP is serving as legal counsel and Lazard is serving as investment banker to the first lien ad hoc group.

Mr Laurence concluded: “Strengthening FRG’s balance sheet will allow us to enhance our support for our businesses as they advance their growth trajectories.”

Fraser Tennant