Fatburger Owner Faces Allegations It Masked Liquidity Crunch
Photographer: Asim Hafeez/Bloomberg One of FAT Brands Inc.’s shareholders is suing the restaurant-chain owner for allegedly hiding the true extent of its debt amid a darkening financial outlook that saw its stock hit a multiyear low this week. Most Read from Bloomberg The company, which owns Fatburger and Johnny Rockets, resorted to high-interest loans known as merchant cash advances as its finances deteriorated, according to a pair of complaints filed in Delaware Chancery Court since late November. The shareholder accuses FAT Brands of misrepresenting debt as cash to try to win fresh financing. The MCAs, together with other transactions that were “designed to artificially inflate its cash position and disguise its liquidity issues,” suggested deeper troubles with the firm’s finances that weren’t “properly accounted for in FAT’s publicly disclosed financial statements or disclosed to investors,” according to one of the complaints. FAT Brands warned in late November that it could be forced to file bankruptcy after creditors demanded full repayment on its roughly $1.2 billion of whole-business securitization debt, an amount it didn’t have “on hand to pay.” Soaring costs and competition have pushed several casual-dining chains into bankruptcy in recent years, including some that carried substantial loads of that debt where franchise companies pledge most of their assets as collateral. The shareholder, Kevin Gordon, alleges the company has more than $1.4 billion in debt and that it was unlikely to be able to repay its lenders. Gordon, whose FAT Brands shares were worth about $1,650.60 on Dec. 1, began looking into the matter after a “failed transaction” between FAT Brands and Alagna Advisors, which lists Gordon as global head of structured credit on its website. FAT Brands has until next week to respond to the complaint, as per court rules. A representative for the company declined to comment. Scott Schirick, a lawyer with Alston & Bird representing Gordon, declined to comment. Shares in the company hit a more than five-year low earlier this week and are down about 85% so far this year. Debt Holders FAT Brands’ financial woes raise the prospect of potential pain for holders of the debt, which include 352 Capital, a hedge fund backed by Leucadia Asset Management, the asset management arm of Jefferies Financial Group Inc.