by With court approval, retailer American Freight is expected to shut down immediately, while other brands including Buddy’s Home Furnishings will continue operations as part of a restructuring agreement
DELAWARE, Ohio — As has been anticipated for some time, Franchise Group filed for Chapter 11 bankruptcy protection over the weekend in the U.S. Bankruptcy Court for the District of Delaware.
The FRG portfolio includes Buddy’s Home Furnishings, American Freight, Pet Supplies Plus and The Vitamin Shoppe. Under the restructuring agreement, all of those brands will continue operations except for American Freight, which, subject to court approval, will shut down immediately. GOBs are scheduled for Tuesday. Franchised locations of FRG’s brands are not part of the proceedings.
If approved by the court, the restructuring agreement will allow FRG businesses to continue to operate “seamlessly during this process,” according to Andrew Laurence, FRG’s president and CEO, who took over for Brian Kahn when Kahn stepped down in January, or just two months after FRG sold Badcock Home Furnishings to Conn’s.
The FRG filing comes just three days after the deadline for restructuring as determined by FRG lenders. In late August, the lenders agreed to the grace period. The restructuring plan submitted to the court includes $250 million of debtor-in-possession financing to keep operations going, according to FRG.
The restructuring agreement needed the approval of primary lenders, which includes HPS Investment Partners. HPS is itself attempting to be acquired by BlackRock, according to reports from Bloomberg. The sole bidder for HPS so far, BlackRock shed part of its stake in B. Riley just a month ago, the boutique investment bank that is at the nexus of FRG deals for the past few years.
Same old song
The FRG filing is just the latest of a string of bad news for the home furnishings sector that can be traced to the B. Riley-brokered deal that took FRG private in August 2023. B. Riley extended $200 million in loans and it invested in FRG to allow the Kahn-led management team to take FRG private again in a $2.6 billion deal. That 31% stake in FRG eventually caused B. Riley to suspend its second-quarter dividend in August this year and to predict net losses of as much $475 million, the vast bulk of that tied to write-downs of FRG debt.
During an Aug. 12 call with investors, B. Riley’s founding CEO Bryant Riley said he and the company had received subpoenas from the SEC seeking information about B. Riley’s dealings with Kahn. Kahn also is under investigation, by the Department of Justice, for his possible contributions to the collapse of Prophecy Asset Management, a hedge fund he advised. Both Riley and Kahn have asserted that they have not committed any crimes and that they have no knowledge of crimes that may or may not have been committed.
B. Riley also aided FRG in the deal to acquire Badcock from the Badcock family for $580 million in November 2021 and in the deal to unload Badcock to Conn’s for $1 million in stock just two years later, in December last year. Since that sale, B. Riley has advised Conn’s in its own bankruptcy, and B. Riley’s Great American Group has been administering Conn’s GOB sales.
Just last week, B. Riley sold off Great American for $386 million to OakTree Capital, though the firm will net considerably less than that after all of the deal’s stipulations are applied.
Lenders at the wheel
FRG’s bankruptcy gives control of the company to its lenders, which are owed approximately $1 billion. That debt load has been the focus of negotiations for the past two months. With a deadline of Oct. 30, FRG has been working to determine a path forward in consultation with both senior and junior lenders, the latter of which agreed to defer interest payments during the period.
A restructuring proposal was expected in mid-September, with a goal of avoiding bankruptcy court, according to a report from Bloomberg in August. The agreement submitted to bankruptcy court Sunday, one that includes $250 million in commitments from DIP financing, is subject to court approval. It lists assets of between $1 billion and $10 billion.
In addition, a raft of “first day” motions include requests to continue to pay wages and provide benefits to employees, and to continue customer programs. Vendors of operating businesses will be paid in the ordinary course after the filing, according to FRG, which now will turn its attention to seeking bidders for the businesses.
Vendors with questions can call 844-285-4564 or email FRGInquiries@ra.kroll.com.
Willkie Farr & Gallagher LLP and Young Conaway Stargatt & Taylor LLP are serving as legal counsel, AlixPartners is serving as financial adviser and chief restructuring officer, and Ducera Partners is serving as investment banker to the company. Paul Hastings LLP is serving as legal counsel, and Lazard is serving as investment banker to the first lien ad hoc group.
