Popular burger chain faces likely Chapter 11 bankruptcy
According to The Street, Owning a major fast-food chain franchise like Burger King, Wendy’s, Hardee’s, or Popeyes was once considered a surefire way to make money. However, in recent years, a combination of economic challenges such as the COVID-19 pandemic, inflation, rising interest rates, and increased minimum wage costs has driven several franchise operators into bankruptcy.
In 2023, two Burger King operators, Meridian Restaurants and Toms King, filed for Chapter 11 bankruptcy, citing rising costs and declining sales. Hardee’s franchisee Summit Restaurant Holdings, which operated 106 units, also filed for bankruptcy, leading to the closure or sale of many of its restaurants. Wendy’s franchisee Starboard Group, which ran 72 locations, and RRG Inc., which operated 17 Popeyes restaurants in Georgia, also filed for Chapter 11 bankruptcy in 2023.
While it’s rare for a franchisor itself to file for bankruptcy, that scenario could soon apply to BurgerFi International (BFI), a fast-casual burger chain that is now at risk of Chapter 11 bankruptcy after defaulting on secured debt owed to TREW Capital Management.
BurgerFi Faces Financial Struggles and Potential Bankruptcy
BurgerFi International, based in Fort Lauderdale, Florida, was founded in 2011 and operates 102 franchised and corporate-owned BurgerFi locations, offering burgers, hot dogs, chicken, fries, and frozen custard. The company also operates 59 corporate-owned and one franchised Anthony’s pizza and wings restaurants.
On April 1, BurgerFi violated the minimum liquidity requirement on its $51.3 million term loan and $2 million revolving line of credit with TREW Capital Management, with both loans maturing on September 30, 2025. The violation entitles TREW to call the debt before the maturity date, but BurgerFi does not have the funds to repay if the debt is called, according to a Securities and Exchange Commission (SEC) Form 10-Q report for the quarter ending April 1, filed on May 16.
In an effort to address the default, BurgerFi and TREW entered into a forbearance agreement on May 30, which allowed the company access to the remaining $2 million on the revolving line of credit. The company also began reviewing strategic options, such as seeking additional financing, selling assets, or potentially selling the entire company. During this time, BurgerFi worked to manage cash flows by prioritizing key obligations.
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Ongoing Financial Declines and Operational Concerns
On August 16, BurgerFi reported that it was unable to file its SEC Form 10-Q quarterly report on time. The company projected a $1.8 million, or 4%, drop in sales for the quarter ending July 1 and anticipated an $18.4 million net loss for the quarter, compared to a $6 million loss during the same period in 2023. BurgerFi also expected to report $4.4 million in cash and cash equivalents. Due to these financial difficulties, the company expressed substantial doubt about its ability to continue as a going concern.
Despite efforts to restructure its obligations and secure additional financing, there is no guarantee that BurgerFi will be able to meet its financial commitments or avoid bankruptcy. The forbearance agreement expired on July 31, but the company reached a protective advance agreement with TREW, which provided $2.5 million in additional funds. The agreement requires BurgerFi to secure a letter of intent for the sale of the company by August 28, followed by an asset purchase agreement within seven days of receiving the letter.
If BurgerFi files for Chapter 11 bankruptcy, it will likely conduct a Section 363 bankruptcy sale, allowing for the sale of its assets under court supervision. With substantial financial hurdles ahead, BurgerFi’s future remains uncertain, as it attempts to navigate through this challenging period.
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