BurgerFi announced Monday that it’s exploring a sale via bankruptcy after an out-of-court attempt became unviable.
The proposed sales and bidding process in court is part of a financing agreement in which the company received $3.5 million from its lender TREW Capital Management. The money will be used to stabilize operations and negotiate with vendors and landlords.
“The Company has worked very hard to ensure that the transition into Chapter 11 would have no impact on our valued employees, customers and franchise partners,” CEO Carl Bachmann said in a statement. “We are very pleased that we received approval of our key motions to support our continued operations including employee wages and benefits, cash management and customer programs.”
READ MORE:
BurgerFi Warns of Potential Bankruptcy
BurgerFi Explores Strategic Alternatives to Fix Downward Sales and Finances
Earlier this year, as part of a forbearance agreement, BurgerFi—which also owns Anthony’s Coal Fired Pizza & Wings—had to try to sell either the entire company or parts of it to pay off its debts. It hired Kroll Securities to help find potential buyers. Kroll started looking for buyers on June 17, and reached out to 139 companies and investors. Out of those, 62 showed enough interest to receive detailed information about the business.
By the week of July 22, nine of these potential buyers expressed interest in buying either BurgerFi, Anthony’s, or both. Kroll and BurgerFi’s management held meetings with these interested parties and gave them more detailed information about the company. The buyers were then invited to submit formal offers, known as stalking horse bids.
In the end, two companies submitted official offers: one for BurgerFi and one for Anthony’s. The outcome was not sufficient to cover the company’s debts or to result in a viable out-of-court sale.
“Notwithstanding the hard work of BFI, its management, and advisors, the commencement of these Chapter 11 Cases was necessary. An out-of-court sale was not feasible given the Debtors’ liquidity constraints and the need to efficiently address the secured liabilities,
their leases, their vendor obligations and BFI’s status as a publicly-traded company,” chief restructuring officer Jeremy Rosenthal said in a court filing. “As the Debtors’ liquidity continued to deteriorate, commencing these Chapter 11 Cases was necessary to preserve the value of the Debtors’ assets and maximize its going concern value by preventing landlords from seeking to terminate leases.”
The parent company operates 144 locations across the two concepts, but only 67 corporate-owned units are impacted. Franchisee-owned locations of BurgerFi and Anthony’s are excluded from the bankruptcy proceedings.
Nineteen underperforming corporate-owned stores closed leading up to the bankruptcy (10 BurgerFi stores and nine Anthony’s stores).
BurgerFi has 93 stores nationwide (76 franchised and 17 corporate), which is its lowest restaurant count since well before the pandemic. It’s a decrease from the 102-unit total (75 franchised and 27 corporate) at the end of Q1.
Anthony’s has 51 restaurants (50 corporate-owned casual restaurant locations and one dual-brand franchise location with BurgerFi). That’s a decrease from 60 locations at the end of Q1.
BurgerFi’s leadership has been shaky, as well. Bachmann and CFO Chris Jones are still in place, but the board of directors has changed dramatically.
Executive chairman Ophir Sternberg stepped down in May, with board member David Heidecorn taking over the role. However, on Monday, the restaurant group said Heidecorn resigned from his post. In August, board members Allison Greenfield, Vivian Lopez-Blanco, Andrew Taub, and Gregory Mann resigned.
The board now features two people—David Gordon and Michael Epstein—two independent directors appointed in August.
BurgerFi initiated bankruptcy proceedings because of underperforming locations, an “unsustainable” debt burden, and declining revenues, according to the court filing. The restaurant group wants to use bankruptcy protection to improve cash flow, streamline operations, adjust to now-closed unprofitable restaurants, and continue to reshape the footprint.
“Unfortunately, despite the strength of their brands, the Debtors have not been immune to the macroeconomic and business headwinds plaguing the restaurant industry as a whole,” Rosenthal said in the court filing. “In short, rising labor and food costs, increasing unemployment, higher interest rates, difficulties accessing growth capital, declining foot traffic, and declining consumer spending have put downward pressure on already tight margins, leading to significant losses and resulting in several restaurants that management did not believe could be operated profitably with the current resources, leasing terms and cost structure and which have now been closed.”
BurgerFi acquired Anthony’s in 2021. The new chain boosted revenue to $178.7 million or by $109.4 million (189 percent) in 2022, but same-store sales fell 11 percent for corporate-owned BurgerFi restaurants. In 2023, the combined company experienced an $8.6 million year-over-year decline in revenue. Royalty and other fees decreased $2.2 million or 23 percent, due to a 6 percent drop in franchise restaurant comps. Also, the restaurant group experienced a net loss in 2022 and 2023—$103.4 million and $30.7 million, respectively.
The consolidated company expects a 4 percent drop in Q2 same-store sales and a net loss of $18.4 million. The sluggish sales wiped out BurgerFi’s cash position. The group has $1.6 million on hand, down from $7.6 million on January 1.
BurgerFi’s previous lenders noticed defaults on January 11 and April 2, including failure to make principal and interest payments and not satisfying minimum liquidity requirements.
In April, TREW took over as primary lender.
To avoid immediate legal action, BurgerFi agreed to a forbearance agreement with TREW on May 30. This agreement gave the restaurant group some extra time (until July 31) to sort out its financial problems without the lender taking any immediate steps to collect the owed money. However, this agreement was not extended beyond July 31. After that, TREW made an additional cash advance on August 8 to protect its interests in the company’s assets.
BurgerFi has significant debt obligations, including a senior credit facility with a balance of approximately $60.25 million and a junior term loan totaling around $18.1 million.
