Controversy continues to surround the CEO of Twin Peaks owner Fat Brands as the company navigates bankruptcy. | Photo: Shutterstock.
When Fat Brands filed for bankruptcy last month, the company largely stuck to the script that one can expect from such filings, meaning that it blamed the company’s debt levels and the general operating environment for draining its cashflow.
Specifically, the company said that a series of whole business securitizations did not leave it with enough of a management fee to pay operating costs.
But it would not take long for lenders to turn that on its head. Shortly after the filing, a group of Fat Brands bondholders took the issue right at the person who created the company in the first place: Andy Wiederhorn.
Those bondholders detailed tens of millions of dollars in salary, bonuses, personal expenses, forgiven loans and dividends paid to Wiederhorn and his family in the years since the company went public.
“The debtors are currently run by a chief executive officer and controlling shareholder, Andrew Wiederhorn, that treats these companies as his personal piggy bank,” the lenders said in an early request to have a trustee appointed, a move that was denied.
“The reason these debtors are short on cash is because Andrew Wiederhorn looted them to support himself and his family.”
Wiederhorn’s ownership and control of Fat Brands, and his desire to buy the company out of bankruptcy, have been a central issue in the bankruptcy process. In various filings and court hearings, bondholders and creditors have expressed deep reservations about Wiederhorn’s leadership and his family’s role in the company.
Those reservations reached a fever pitch in recent days, when those same bondholders asked a court to suspend Wiederhorn over an unauthorized stock sale.
Fat Brands had reached a deal shortly before the bankruptcy filing to sell 9 million shares of Twin Peaks stock to White Lion Capital. Then, days after the filing, went through with the sale without seeking court approval. That is a serious violation of bankruptcy court rules.
Or, to use the words of Judge Alfredo Perez: “This does violate the rule of no surprises, and that’s concerning.”
Wiederhorn has long been a controversial figure. He spent more than a year in prison over federal tax charges more than 20 years ago—and was paid during his imprisonment. More than a decade after he got out, he used Fatburger, which he had owned through his investment firm Fog Cutter Capital, as the starting point for Fat Brands, a restaurant chain collector.
Fat Brands went public in a “mini-IPO” in 2017. It bought mostly small, weak chains, often using creative financing, such as the acquisition of Elevation Burger using a seller’s note. During one particularly difficult financial period the company took out a short-term, high-interest loan from Sardar Biglari that, had it not been paid in six months, would have given the chairman of Biglari Holdings an awful lot of Fat Brands stock.
The debt amassed in 2020 and 2021 to swallow up a bunch of bigger chains was similarly creative. Fat Brands likely overpaid for most of its acquisitions and then used securitized financing, selling bonds backed by the chains’ revenue without getting them rated, so they came in at a higher interest rate. That’s the main reason the company has $1.5 billion in secured debt now.
Within two years of those deals, federal agents raided the home of one of Wiederhorn’s sons and the company acknowledged that it was under investigation. Wiederhorn was later charged over a $47 million loan scheme, in which Fat Brands loaned, and later forgave, those funds.
Wiederhorn admitted that the board forgave the loan, according to court filings.
Bondholders also took issue with Fat Brands’ contention that it wasn’t provided with enough management fees to pay operating costs.
“In truth, the debtors’ operating businesses, which are separately financed and securitized, generate sufficient income to support their basic operating expenses,” bondholders said. “And the agreed management fee should be sufficient for the parent company to provide management services to support the securitizations. That is how the system is supposed to work.”
Exactly how much the Wiederhorns took out of the company is uncertain. But the bondholders detailed a list of some of the various payments:
- $22 million in salary, benefits and consulting fees paid to Wiederhorn and his family over the last two years, including $1.1 million in bonuses just before the bankruptcy filing;
- The $47 million forgiven loan;
- $17 million in dividends paid to Wiederhorn and the family over the past five years;
- $27 million spent on private jets, vacations, Jewelry and other personal expenses from 2017 to 2021;
- A “material portion” of $85.5 million in litigation expenses noted in the court filing were paid to Wiederhorn’s personal lawyers to defend him against various federal charges.
“These amounts are just what has been identified already, without the benefit of discovery,” the bondholders said.
These concerns have not been enough to oust Wiederhorn, at least not yet. But the company, with approval of various attorneys, has taken steps to put a check on the family’s actions during the bankruptcy process.
And Fat Brands’ attorneys on Tuesday worked to assure creditors that all this should work. “The management team has been nothing but cooperative,” said Ray Schrock, an attorney for the company.
Yet it’s clear that, as long as Wiederhorn leads Fat Brands, questions about the company and its use of funds will always follow.
