Fat Brands and restaurants’ debt habit

Fat Brands bought up chains like Johnny Rockets with excessive debt. | Photo: Shutterstock.

This is from the weekly restaurant finance newsletter The Bottom Line. To get this in your inbox every Monday morning, click here.

The big news of a short week came courtesy of Fat Brands, which had revealed that the trustee overseeing its securitized bond issue has demanded the full payment of the company’s nearly $1.3 billion in debt. While the company has called its discussions with bondholders “standard,” there is nothing “standard” about having a loan called. 

Not long after that, we reported that the Fat Brands-owned Round Table Pizza franchisees sued the brand over marketing.

Fat Brands is always surrounded by controversy, typically stemming from CEO and owner Andy Wiederhorn’s history, the now-dismissed federal tax charges and his financially aggressive tactics. But in many respects the situation the company is in today is rather run-of-the-mill. It has too much debt and has, at least allegedly, made various compromises to pay that debt off.

The restaurant industry is filled with examples of companies that leverage themselves to the hilt, which leaves them without any real room for error. 

Yes, securitization financing enabled Fat Brands to go from a buyer of old and cheap restaurant chains to engineering nearly $1 billion worth of acquisitions in a year and a half. 

But what’s the difference between that and, say, a private-equity group buying a seafood chain, selling off the real estate to maximize the short-term return, then selling the thing years before that ticking time bomb of excessive lease rates goes off?

Fat Brands bought up a bunch of restaurant chains at elevated values using a huge amount of leverage and then the bottom fell out of the restaurant industry. It’s a story we’ve heard over and over again. 

This week’s financial news

More mixed signals on restaurant sales last month. But there are some clear signs that the economy is weakening heading into the holiday season. God help us if the AI bubble bursts.

And the economy isn’t the only threat to the restaurant industry out there. Consumer changes. GLP-1s. But people still love restaurants.

Papa Johns kicks off its refranchising effort. Nobody wants to run restaurants any longer.

The US Foods-PFG merger talks are dead. Probably about a zero chance of that passing regulatory muster at a time when the administration is struggling to contain voter angst about inflation.

Everybody wants to go to London, apparently. But good luck. It’s not much easier to operate there than in the U.S. these days.

Number of the week

Restaurant chains are doing a lot better internationally than they are in the U.S. right now. Some of that is due simply to more aggressive expansion. But same-store sales are better overseas, too.

Quote of the week

“It’s harder than ever to profitably run restaurants.” -My Technomic colleague David Henkes, at the recently concluded Global Restaurant Leadership Conference.

On the blog

I wrote about the Fat Brands situation because I’ve been on the Fat Brands beat all week. Check out all my blog posts on The Bottom Line.

On the podcasts

On A Deeper Dive we continued our examination of AI in Restaurants. There was no The Week in Restaurants because of the holiday but you should check out that podcast, anyway.

For questions, comments or story ideas, send me an email at jonathan.maze@informa.com. And follow me on Twitter at @jonathanmaze. And also LinkedIn. And TikTok.

Restaurant Business Editor-in-Chief Jonathan Maze is a longtime industry journalist who writes about restaurant finance, mergers and acquisitions and the economy, with a particular focus on quick-service restaurants.

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