UPDATE: April 6, 2021: Wilmington Trust, National Association has sued Steak 'n Shake over $8.5 million in unpaid fees and interest dating back to 2018, debt it claims the fast food chain refuses to settle, according to a court filing. It was first reported by Restaurant Business Monday. These fees are part of the $220 million in loans the restaurant's parent company, Biglari Holdings, claimed it cleared in February. 

Wilmington claims that Steak 'n Shake must still pay almost $3.7 million in damages and $4.85 million in interest that has accrued since 2018, despite the restaurant's assertion that it is debt free. 

Dive Brief:

• Steak 'n Shake on Friday repaid the remaining balance of the $220 million loan it owed its debtors, including Fortress Investment Group, Bloomberg reported Monday, citing people with knowledge of the payment. By paying off its debt, which had been reduced to $153 million and was due March 19, the burger chain avoided a potential Chapter 11 bankruptcy filing, which it had been preparing for with advisers FT Consulting Inc. and Latham & Watkins while negotiating its debt with Fortress. 
• Steak 'n Shake then sued Fortress in an Indiana court on Friday. The chain accused Fortress of scheming to take control of its assets by using confidential financial information obtained last year during negotiations for a potential real estate deal to try and buy Steak 'n Shake's loans, push it into bankruptcy and then acquire it through a credit bid, according to the suit.
• In the suit, Steak 'n Shake claims the alleged Fortress plot "drove up the cost that Steak 'n Shake had to pay to retire Steak 'n Shake's outstanding loans" and cost it "millions of dollars and countless hours of management attention at a critical time." Fortress told Bloomberg the complaint is "baseless." Steak 'n Shake and Fortress did not reply to requests for comment before press time. 

Dive Insight:

Steak 'n Shake's suit against Fortress is just the latest twist on a tumultuous path over the past few years in a bid to make up for lost traffic and sales. The outstanding debt on its loan fueled this scramble for improved performance, with CEO Sardar Biglari admitting in an annual shareholder letter in 2019 that "there are no assurances that Steak 'n Shake will be able to restore profitability."

Now that Steak 'n Shake has reportedly paid off its debt, which was looming over the company's strategy, there may be smoother waters ahead for the chain. But the company's decision to go on the offensive against its lender to collect damages and hold Fortress accountable for its alleged "bad faith conduct" is still a bump in the road. 

In 2019, the chain temporarily shuttered 107 of its 368 company-operated restaurants with plans to reopen the units without table service, which has been a mainstay for the company for nearly 90 years. Instead, Steak 'n Shake would make up for what Biglari dubbed "operating shortfall" caused by high labor costs and slow production by transitioning these locations to counter service only. Steak 'n Shake also hoped to improve its finances by selling its company-owned locations as part of a new franchise-partner model. 

But this change came with new costs, too. In its Q2 2020 report — before COVID-19 disruption posed another obstacle for the beleaguered chain —​ the company said moving to a counter-service model "will require significant investments in equipment." At the time, Steak 'n Shake planned to cover these new costs by selling corporate-owned real estate at auction. 

As of Q3 2020, the company was still seeking to transition to a self-service model amid the coronavirus that forced it to close its dining rooms, but Biglari Holdings said the funds needed were limited under its current debt agreement. The chain now has more financial flexibility to pursue this model, which could help the chain recover lost revenue. Biglari's restaurant revenue, which includes Western Sizzlin, slipped by 43% to $272 million during the first nine months of 2020.