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Franchise Group Moves Restructuring Forward After Lawyers Ousted
Franchise Group Inc. won court permission to press ahead with a potential restructuring despite pushback from junior lenders and the recent removal of the law firm that had guided the troubled brand manager through bankruptcy.
(Bloomberg) -- Franchise Group Inc. won court permission to press ahead with a potential restructuring despite pushback from junior lenders and the recent removal of the law firm that had guided the troubled brand manager through bankruptcy.
The company tapped a new law firm, Kirkland & Ellis LLP, after a Delaware judge blocked Willkie, Farr & Gallagher over its ties to Franchise Group’s former chief executive officer Brian Kahn, investment adviser B. Riley Financial Inc. and a soured 2023 buyout central to the bankruptcy.
The priority, despite the change in law firm, is reorganizing Franchise Group as quickly as possible to hold on to the company’s more than 2,000 retail locations and 12,000 employees, Kirkland lawyer Josh Sussberg said during a hearing on Wednesday. The company’s retail brands include Pet Supplies Plus and The Vitamin Shoppe.
Judge Laurie Selber Silverstein Wednesday said she’d give Franchise Group permission to poll creditors on the proposed restructuring, pending final changes discussed at the hearing. A draft of the proposal released Wednesday said an investigation by the federal government into to the collapse of hedge fund Prophecy Asset Management, where Kahn was a fund manager, is ongoing.
The investigation negatively impacted Franchise Group and contributed to the Chapter 11 filing, the company said. Kahn has denied wrongdoing.
The restructuring proposal would hand control of the business to first lien lenders, which include HPS Investment Partners, HG Vora Capital Management, Guggenheim Partners Investment Management, Octagon Credit Investors and Oaktree Capital Management LP, according to court papers filed earlier this month.
The senior lenders have been battling with second lien lenders Pacific Investment Management Company LLC and Irradiant Partners LP, which oppose the proposal and have sought control of the restructuring process.
Franchise Group’s senior lenders “want to save the business” and assert the second lien group “are out of the money,” Sussberg said. The company’s senior debt is trading at roughly 50 cents on the dollar, Sussberg said, adding Franchise Group advisers are setting up a meeting between the different lender groups to strike a settlement, if possible.
“This case has gotten incredibly personal,” Sussberg said. “When cases get personal, emotions sometimes get in the way.”
The case is Franchise Group Inc., number 24-12480, in the US Bankruptcy Court for the District of Delaware.
More stories like this are available on bloomberg.com
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First Published:20 Feb 2025, 03:16 AM IST
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