Dive Brief:
- Earlier this month, TGI Fridays creditors declared a manager termination event, as the casual dining brand ran afoul of the requirements of its whole business securitization — a $375 million bond issued in 2017 and secured using key aspects of TGI Fridays business as collateral, according to the Kroll Bond Rating Agency.
- The termination event prompted Hostmore, a United Kingdom-based franchisee of TGI Fridays that was pursuing an acquisition of the brand, to back out of its acquisition. Hostmore, according to U.K. investment documents, is in the process of selling its Fridays stores.
- The manager termination event means that FTI Consulting, serving as a successor manager to TGI Fridays, will assume control for the portions of Fridays’ business included in the whole business securitization.
Dive Insight:
The aspects of Fridays’ business impacted by the manager termination event include “calculating and collecting amounts pertaining to franchise agreements and transaction documents, providing pre-opening and post-opening support to franchisees, overseeing certain advertising and marketing functions,” according to KBRA.
Despite the bond being a whole business securitization, it’s not clear the extent to which TGI Fridays’ large number of company-owned restaurants are impacted. At the very least, according to the press release, the successor manager now assumes control over “future company-operated restaurant royalties, license agreements, existing and future intellectual property, and related revenues.”
Hostmore said it is no longer actively pursuing its acquisition of TGI Fridays.
“However, TGI Fridays and the Group agree that each is open to re-engaging discussions if circumstances warrant,” Hostmore said in a release.
In August, Hostmore announced it was pursuing a sale of TGI Fridays restaurants as part of a plan to transition Fridays to a wholly franchised business model. Hostmore is still pursuing the sale of its 87 restaurants, and said it has received some bids, but no longer expects it “will recover any meaningful value for its ownership,” because the bids are “lower than the par value of the borrowings currently secured by [Hostmore’s] trading subsidiary.”
TGI Fridays has struggled for several years, shedding many stores, according to its Franchise Disclosure Document. The brand’s U.S. unit count fell from 329 at the start of 2021 to 269 at the end of 2023, and it announced the closure of a further 36 underperforming units earlier in 2024. According to its website there are currently 225 U.S. TGI Fridays units. In 2023, TGI Fridays underwent several executive changes, and said it was pivoting toward “evolving TGI Fridays into an experiential hospitality and entertainment destination,” which included the launch of a new events service.
Despite the negative traffic trends and sales troubles facing casual dining, which led to the bond being downgraded several times, TGI Fridays continued to make timely interest payments on the bond, according to KBRA. Instead of basing the manager termination event on a breach of sales or cashflow requirements, the bondholders seized control of Fridays’ assets because the casual dining brand did not provide reports from an independent auditor or the back-up manager for the bond by an unspecified deadline.
KBRA said this was the first instance the bond ratings agency knew of in which a bondholder carried out a manager termination event against a bond issuer for a whole business securitization since the Great Recession.
Other casual dining brands have had a difficult year, with Red Lobster seeking Chapter 11 bankruptcy protections and closing scores of units before its restructuring plan was approved. Bloomin’ Brands announced it was closing 41 underperforming stores in February; Hooters announced similar measures in June. Recently, Buca di Beppo shuttered a slew of stores and sought Chapter 11 protections.
Neither TGI Fridays nor FTI Consulting responded to requests for comment.
