Fat Brands wants to undo a pre-bankruptcy refinancing. | Photo: Shutterstock.
Fat Brands is accusing one of its lenders of fraud in connection with a refinancing on the eve of its bankruptcy filing that left one of its concepts, Hot Dog on a Stick, deeper in debt and without any real benefit to the restaurant chain.
The restaurant chain operator filed an adversary complaint against Insight Capital, LLC, and Gold Cap, LLC, along with 10 unnamed individuals. The complaint is part of the bankruptcy that Fat Brands filed earlier this year.
According to the complaint, Fat Brands owed Gold Cap $18.6 million as of Jan. 20. The restaurant operator argues, however, that the obligation is “little or no value” and disputes that it had granted a lien to Gold Cap.
Hot Dog on a Stick (HDOS), one of 17 restaurant chains that Fat Brands operates, was not part of that agreement.
But on Jan. 20, according to the complaint, Fat Brands and HDOS refinanced that $18.6 million with a company called Insight Capital. Under that deal, HDOS borrowed $20.6 million from Insight, which paid off the Gold Cap obligation and received some fees to go with it, according to the complaint.
HDOS granted liens on its property and proceeds to Insight, according to the complaint. Specifically, the loan is secured by 28 of the chain’s stores, according to court documents.
But Fat Brands says that Insight Capital and Gold Cap are controlled by the same person, Yoel Getter.
Fat Brands filed for bankruptcy on Jan. 26, five days later. HDOS “did not receive any cash proceeds” from the transaction, nor did it receive “any indirect benefit,” the company said in its complaint.
An attorney for Insight Capital has not yet responded to a request for comment.
Hot Dog on a Stick is one of three chains under the Fat Brands umbrella that have separate, potential buyers. In its case, a Las Vegas company has agreed to pay $8 million in cash for the chain.
Insight Capital has objected to that sale proposal, saying that the deal does not come close to what it is owed. Insight in its filing said that it is owed $20.5 million from the pre-bankruptcy loan.
The lender called the $8 million bid “wholly insufficient.”
This is one of multiple disputes that have emerged in the Fat Brands bankruptcy. The company is headed for a sale that would break up its chains into multiple pieces, most of which will go to lenders in credit deals.
In addition to the HDOS deal, Elevation Burger seems set to be sold for $2.5 million to a company out of Kuwait. Twin Peaks and what’s left of Fat Brands are set to be sold, pending court approval. The Twin Peaks bid is for $359.5 million in converted debt. The bid for the rest of Fat Brands is $595 million.
Some of the company’s unsecured creditors are objecting to the sale over $195 million in various claims, saying those claims should be paid before a sale is to be finalized.
One group of franchisees, for Twin Peaks, argued in favor of the sale, saying that the creditors “would prefer to burn the house down” and liquidate the assets rather than sell them as restaurant chains.
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