(Bloomberg) -- TGI Friday’s Inc. is speaking with potential buyers, a company attorney said Monday, and disclosed it suffered a “significant” revenue hit when it lost control of assets it used to secure $375 million in bonds it sold in 2017.
The company, which filed for bankruptcy on Saturday, said parties have expressed interest in buying some or all of TGI Friday’s business, company lawyer Chris Dickerson said during the chain’s first bankruptcy hearing in Texas. Names of potential buyers weren’t disclosed during the hearing and couldn’t immediately be learned.
TGI Friday’s is “pretty far down the road” negotiating with one particular party, which the restaurant hopes will agree to acquire the business as a stalking horse bidder, Dickerson said. A stalking horse bid would set a floor price for TGI Friday’s assets and would be subject to better offers at a potential Chapter 11 auction.
During the Monday hearing, lawyers also discussed TGI Friday’s 2017 bond sale, which was structured as a so-called whole-business securitization. The bonds are secured by the chain’s brand, license agreements, future franchise agreements, royalties and other sources of revenue, according to court documents.
TGI Friday’s lost management control of those entities in September, and they are now being managed by FTI Consulting Inc. As a result, TGI Friday’s said in court papers it lost “a significant portion of its revenue stream” because it no longer will receive the benefit of restaurant royalty payments.
More franchised restaurant chains have been turning to whole-business securitizations to raise cheaper debt, but the structure has rarely been tested in bankruptcy courts. Special corporate entities formed as part of the bond transaction aren’t a part of the chain’s Chapter 11 case.
Alexander Woolverton, a lawyer representing FTI, said during the Monday hearing that the securitization entities “don’t endorse the narrative” described in TGI Friday’s bankruptcy filings. The facts contained in TGI Friday’s court filings are incomplete, Woolverton argued, adding the securitization entities may provide competing facts in future proceedings.
During the Monday hearing, TGI Friday’s also won court approval to keep paying wages and other ordinary business expenses as it starts operating in Chapter 11. The chain has already closed some locations and said its US sales have declined by about 15% over the past year as its struggled with rising costs and a shift in consumer preference for faster, limited-service dining options.
The case is TGI Friday’s Inc., number 24-80069, in the US Bankruptcy Court for the Northern District of Texas.
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