Lenders for the parent company of the Lexington-based fast casual Italian chain Fazoli’s are asking for immediate action on more than $1 billion in debt payments.
The ask isn’t the first time the parent company, California-based FAT Brands Inc., has faced major financial trouble or put its subsidiaries Fazoli’s, Johnny Rockets, Twin Peaks and others at potential risk.
In an acceleration notice filed with the Securities and Exchange Commission Nov. 17, UMB Bank demanded immediate payment of approximately $1.3 billion in FAT Brands’ bond debt.
The company does not have the cash on hand to begin to pay down the loans immediately, it said in the SEC filing. More action by the lenders, they said in the filing with the government agency responsible for regulating stocks and bonds, could push the company even closer to bankruptcy or its subsidiaries to reorganization.
Fazoli’s, one of FAT Brands’ restaurant chains, was founded in Lexington as Gratzi’s in 1988 and became known for its fast-casual dining experience and unlimited breadsticks.
There are more than 200 locations across 28 states, though its headquarters is still in Lexington on Palumbo Drive. In November 2021, FAT Brands, which is publicly traded on the Nasdaq Capital Market under the ticker FAT, acquired the Italian chain for $130 million.
In a statement to the Herald-Leader, FAT Brands Inc.’s Senior Director of Corporate Communications Erin Mandzik said the company was “actively engaged in constructive negotiations with our bondholders to address the restructuring of our debt to strengthen FAT Brands’ balance sheet.”
“Throughout these discussions, we remain focused on the day-to-day operations of the brands and the continued success of our portfolio and franchise partners,” Mandzik said.
In the company’s most recent earnings call Nov. 5, a presentation for shareholders said the brand’s end of year focus would be on maintaining strong liquidity, continuing to build asset value for debt reduction and re-franchise nearly 60 company-owned Fazoli’s restaurants.
The payment demand, according to the SEC filing, comes after FAT Brands defaulted on debt issued to five of its subsidiaries last month.
Since then, the filing said FAT has been in discussions with lenders about one or more potential transactions involving refinancing, restructuring or other securitization, a process that puts various assets together then repackages them as stocks or bonds for sale in the hopes it will raise money.
Acquiring Fazoli’s and a number of other chains between 2019 and 2021 made FAT Brands begin to accrue significant debt. In 2024, the company began trying to reduce its debt without borrowing more money by filing for an initial public offering for one of its subsidiaries.
Across its restaurant chains, the company has had weak sales and has even reported millions of dollars of financial losses throughout the year.
According to its third quarter earnings report, same-store sales at its restaurants declined for the eighth consecutive three-month period by 3.5% last quarter.
The company’s stock was already down 80% at the time of the third-quarter report’s release and ticked even further down after the SEC filing was made public by several trade publications covering the restaurant business and the Nasdaq.
On Nov. 25 at market open, FAT Brands stocks were trading at $0.48 each, down almost 82% year-to-date, or about $2.44.
Since acquiring Fazoli’s and other chains, the company has spent many of the years since taking financial hits.
In May 2024, FAT Brands’ CEO, Andy Wiederhorn, was charged with tax fraud. Those charges have since been dropped, according to Restaurant Business Online.
Earlier this year, FAT Brands missed a payment to a marketing firm which led its pizza concept to be without advertising support for several months. Before that, franchisees of its Hurricane Grill & Wings accused its parent company of underfunding their marketing department that had led to declines in sales and store closures.
To acquire Fazoli’s and in an attempt to restructure its debt payments, FAT Brands is using securitization tied to its assets, or its restaurant chains. It’s attempting, with UMB Bank as an advisor and lender, to transform resources it has that cannot be turned into cash quickly or without significant capital loss into ones that are able to be bought and sold in public markets.
The strategy is the same one TGI Fridays and Hooters used to try to reverse financial blows from the pandemic and address debt, respectively. Both restaurant chains later filed for bankruptcy.