Franchise Group, the corporate on the coronary heart of a troubled administration buyout that has devastated the inventory of B. Riley Monetary, has filed for chapter — however plans to maintain open most of its retail manufacturers, together with Vitamin Shoppe.
The retailer filed for Chapter 11 chapter safety on Sunday, asserting it already had a cope with about 80% of its senior secured lenders that may permit them to transform their debt into possession stakes and proceed working the companies.
The corporate’s chains additionally embody Pet Provides Plus and Buddy’s House Furnishings. Its fourth retailer, low cost furnishings and equipment vendor American Freight, shall be closed. American Freight operates greater than a dozen shops in California, together with retailers in Torrance, West Covina and Palmdale.
Franchise Group listed property and liabilities every of $1 billion to $10 billion. The submitting doesn’t apply to franchise-owned shops.
Westwood-based B. Riley took the Delaware, Ohio, firm personal final yr in a $2.8-billion management-led buyout that turned disastrous amid slowing gross sales for Franchise Group and a scandal involving ties between its founder, Brian Kahn, and Prophecy Asset Administration, a hedge fund that federal prosecutors allege defrauded buyers of $294 million. Kahn has denied any wrongdoing.
B. Riley took its personal 31% stake within the firm and took on $600 million in debt to underwrite the deal. It additionally lent Kahn $200 million through the years to determine Franchise Group and take it personal — with a lot of the mortgage secured by shares of the retailer. B. Riley founder and co-Chief Government Bryant Riley has denied information of any wrongdoing, however his agency’s dealings with Kahn are the topic of a Securities and Change Fee investigation.
Riley, in a letter Monday to workers, stated he felt “personally sick about this result,” which is able to probably lead to a lack of fairness stakes in Franchise Group for the corporate and dozens of B. Riley workers, in addition to particular person wealth purchasers and institutional buyers.
He added that the downturn in shopper spending and the scandal involving Prophecy couldn’t have been foreseen, however that B. Riley is in “far better shape than folks give us credit for.”
B. Riley has already introduced that it could mark down its funding in Franchise Group by as much as $370 million and report a lack of as much as $475 million when it recordsdata its second-quarter earnings, which it has but to do.
Shares of B. Riley closed down 14% to $4.92 Monday on the Nasdaq. The inventory traded at near $90 three years in the past.
Riley informed The Instances in September that the agency had lowered its debt associated to the deal to about $380 million and was carrying $1.9 billion in whole debt.
The monetary providers firm has since been promoting off property to proceed slicing its debt. Riley, in his letter, stated it expects that debt associated to the Franchise deal can be lowered to $125 million by the top of the month.
The Franchise Group buyout made B. Riley probably the most extremely shorted inventory in the marketplace, that means buyers had been betting on the corporate’s inventory value to drop. Marc Cohodes, a number one short-seller within the firm, stated the chapter submitting solely underscored how dangerous a deal it was for B. Riley and different buyers it introduced in.
“Instead of blaming himself and his crazy deals where he enriched himself at the expense of others, he blames the skeptics,” Cohodes stated of Bryant Riley. He added that he doubts the agency can dig itself out of debt.
In September, B. Riley stated it had offered a majority stake in its Nice American appraisal and liquidation enterprise for about $203 million to Oaktree Capital Administration, whereas retaining a 47% stake valued at roughly $183 million in a brand new holding firm it fashioned with the L.A. distressed asset supervisor.
The corporate additionally offered off its its pursuits in various attire manufacturers and the previous mall retailer Brookstone for about $236 million.
A number of days in the past, it stated it had offered off a small portion of its wealth administration enterprise to Stifel Monetary Corp. for as much as $35 million in money. Some 40 to 50 advisors, together with the related buyer accounts, are anticipated to maneuver to Stifel early subsequent yr.