financial difficulties and franchise closures
Owning a prominent fast-food franchise such as Burger King, Wendy’s, Hardee’s, or Popeyes used to be viewed as a surefire way to generate revenue. Nonetheless, the situation has changed significantly in recent years. A mix of economic obstacles, including the ongoing repercussions of the Covid pandemic, soaring inflation, increasing interest rates, and heightened minimum wage laws, has led numerous fast-food chain operators towards bankruptcy.
In 2023, the operators of Burger King, Meridian Restaurants and Toms King, filed for Chapter 11 due to escalating costs and weak sales. Likewise, Hardee’s operator Summit Restaurant Holdings, overseeing 106 locations, also sought bankruptcy protection, resulting in the closure or divestment of its restaurants. Wendy’s franchise holder Starboard Group, managing 72 establishments, did the same, as did RRG Inc., which operated 17 Popeyes locations in Georgia, filing for Chapter 11 in January.
While it is uncommon for a fast-food franchisor to face bankruptcy, that trend might soon be challenged. BurgerFi International, a fast-casual burger brand, is on the brink of filing for Chapter 11 after defaulting on senior secured debt owed to TREW Capital Management. Based in Fort Lauderdale and established in 2011, the company has 102 franchised and company-operated BurgerFi outlets, featuring a menu that includes burgers, hot dogs, crispy chicken, hand-cut fries, frozen custard, beer, wine, and soft drinks. Additionally, it manages 59 corporate-run and one franchised Anthony’s pizza and wings establishments.
burgerFi’s financial difficulties and impending bankruptcy
BurgerFi has breached the minimum liquidity requirement on its $3 million term loan and $7 million revolving line of credit with TREW, both set to expire on September 30, 2025. This default gives TREW the right to demand repayment ahead of the due date, and BurgerFi lacks the resources to cover the loans if the lender enforces repayment, as per the company’s SEC Form 10-Q quarterly report for the period ending April 1, submitted on May 16.
Consequently, BurgerFi and TREW reached a forbearance agreement on May 30, enabling the company to utilize the remaining $6 million on the revolving line of credit. The company is actively seeking strategic options, such as acquiring additional funding, liquidating some or all assets, or potentially selling the whole enterprise. It is also managing cash flow by prioritizing certain financial obligations over others.
On August 16, BurgerFi announced it was unable to file its SEC Form 10-Q quarterly report punctually. The company anticipates reporting a $2.8 million, or 4%, decrease in sales for the quarter ending July 1, alongside a $1.4 million net loss for the quarter, compared to a $2 million loss in the same period in 2023. The projected balance of cash and cash equivalents is expected to be around $1.4 million. Given its liquidity situation and projected operational outcomes and cash flows, significant doubts exist regarding the company’s ongoing viability.
The forbearance agreement lapsed on July 31, but BurgerFi established a protective advance arrangement with TREW, providing the company with $1.5 million. This agreement obliges BurgerFi to produce a letter of intent for the business sale by August 28 and to submit an asset purchase agreement within seven days of receiving that letter. The closing of the asset purchase agreement must occur within 60 days unless the company files for Chapter 11 bankruptcy. If BurgerFi proceeds with bankruptcy, it would likely engage in a Section 363 bankruptcy sale.
