Financials Sector Chapter 11s Surging Across All Liability Ranges

Consumer discretionary was the most frequent sector generating chapter 11s this week, including filings from New York restaurant operator SMF Group Inc. and MFG FL Dadeland LLC, the operator of F45 fitness studio franchises. Lourdes University, a Catholic university sponsored by the Sisters of St. Francis, Sylvania, Ohio, also filed. The university is looking to wind-down and sell its real estate.

Real estate filers included Irvine, Calif.-based real estate investment and property management company Iridium Property Investments and Yareton Investment & Management, a Seattle, Wash.-based real estate developer connected to the Four Points Sheraton Seattle Airport South. Boatworks at Tahoe LLC, a Tahoe City, Calif.-based owner and operator of lakefront commercial and hospitality property including Boatworks Mall and The Inn at Boatworks, also filed, in the Eastern District of California. Another hotel owner, Tzadik Mount Rushmore Hotel LLC, which runs The Rushmore Hotel & Suites in Rapid City, S.D., also filed.

A few financial sector cases also filed, including investment holding company 777 Partners and Prime Asset LLC, which purchases retail installment sales contracts from car dealerships in the buy-here-pay-here auto loan industry.

Chapter 11s filed by companies in the financials sector are rising steeply, already eclipsing the end of year totals for all years in the First Day Database, which goes back to 2016.
 

While the graph above looks at financials sector cases across all First Day liability ranges (anything with more than $10 million), the graph below slices the counts for each year by liability segment, restricted to the Jan. 1 – Aug. 13 period. The surge in financials sector filings can be seen at most liability ranges, including a particularly explosive $100 million to $500 million range.
 

For chapter 11s below the $100 million liability threshold, the real estate sector continues to dominate; however, when looking at cases with total liabilities above that line, the consumer discretionary sector takes the lead. For the year-to-date period, the consumer discretionary sector’s share of the overall chapter 11 total increases as the minimum liability threshold increases. For cases with liabilities between $10 million and $100 million, the share is approximately 18%. There is a modest increase to 22% for the $100 million to $500 million range before increasing more steeply to 25% in the $500 million to $1 billion range and an even 30% for the billion-and-up range.
 

777 Partners, a diversified investment holding company, filed on Aug. 9 in the Northern District of Texas, reporting approximately $2.7 billion in funded debt obligations. The debtors, who face an involuntary chapter 7 petition in the Southern District of Florida, filed chapter 11 as part of a long wind-down process begun in May 2024. The debtors filed chapter 11 to preserve remaining asset value, complete sales, establish an orderly process to resolve creditor claims, and transfer longer-duration assets and litigation claims to a liquidating trust. 777 asserts that the chapter 11 process would provide “materially greater value than” the involuntary chapter 7 bankruptcy initiated by creditors.

The debtors entered chapter 11 proposing a $24.9 million DIP facility from prepetition lenders that includes up to $6.2 million of new money plus an $18.7 million rollup of prepetition debt. After prepetition lenders Leadenhall, ING Capital and Vida Capital Management-affiliated parties objected to the DIP facility at the Aug. 11 first day hearing, Judge Edward L. Morris directed the debtors to negotiate with DIP lenders and seek out alternative proposals. On Aug. 13, the debtors received a term sheet for an alternative DIP facility.

The debtors are involved in litigation with prepetition lenders Leadenhall and ING Capital and face a U.S. Securities and Exchange Commission enforcement action, all stemming from allegedly fraudulent collateral pledges under various loan facilities. Co-founder and former managing partner Joshua Wander was indicted on criminal charges in October 2025 for an alleged $500 million fraud scheme involving double-pledged collateral and falsified bank statements.

Lourdes University, a Catholic university sponsored by the Sisters of St. Francis, Sylvania, Ohio, and its affiliate Lourdes Properties LLC, filed on Aug. 10 in the Northern District of Ohio. Over the last 10 years the university has struggled financially, surviving only by “increasingly large” financial contributions and loans from its sponsor the Sisters of St. Francis, Sylvania, Ohio, or SOSF. “As the Sisters themselves have aged and their community has diminished in number, this financial burden has become untenable.” This year, the debtors’ board of directors voted to cease operating as a university and wind-down operations. SOSF is funding the liquidation of the debtors’ assets including real estate and other wind-down processes with a $2.8 million DIP loan.

SMF Group Inc., a New York-based restaurant operator, filed on Aug. 9 in the Southern District of New York. The debtors seek to fund the case with DIP financing from prepetition lender and bridge lender FHGRF LLC, in which the debtors’ Chief Executive Officer has a 35.8% membership interest. The DIP lender is connected with Interlaken Capital Inc., according to the DIP financing credit agreement.

“The Debtors operate a portfolio of iconic restaurants located in New York City’s entertainment and cultural districts, steps from Carnegie Hall and Lincoln Center and in the heart of the Theater District, and in Washington, D.C.,” according to the first day declaration of chief restructuring officer Jordan Meyers. The debtors’ restaurants include Café Fiorello, Trattoria Dell’Arte, Bond 45 and Brooklyn Diner, which Meyers says “are among the City’s longest-running and most recognizable dining destinations, having served generations of theatergoers, concertgoers, and visitors.” The debtors have more than 800 employees.

Meyers says the chapter 11 cases were precipitated by a liquidity “crisis” resulting from the “complete withholding” of revenues by the debtors’ payment processors, which deprived the debtors of cash needed to fund sales taxes, tips, payroll, rent, vendor payments and other ordinary-course operations. The debtors seek to recover more than $5.9 million in proceeds that have been held by the debtors’ payment processors in connection with the MCA funders’ redirect notices.

The debtors say they intend to use the chapter 11 process to restore access to their revenues, stabilize operations and continue a prepetition process of improving cash flow by streamlining operations, closing unprofitable restaurants, and ultimately pursuing a sale of their assets or restructuring through a plan of reorganization.

MFG FL Dadeland LLC, a group of entities that developed, acquired and operated franchised F45 boutique fitness studios, filed on Aug. 9 in the Southern District of Florida. The debtors funded their expansion with $20 million in loans from their ultimate principals Mark Neumann and LHJ Capital Partners II LLC, through Mad Managers LLC, the debtors’ 100% owner. The debtors relied “almost exclusively on affiliate debt.”

“Despite substantial cost reductions and renewed marketing initiatives, cash continued to decline, and the Debtors could no longer fund losses across all 32 studios,” the declaration says. Just before the petition date, the debtors “had placed one studio under contract for sale, identified 15 studios for closure, and identified 16 studios that management believed could form the foundation of a sustainable reorganized business.”

The debtors filed to reorganize, “address uneconomic leases and other legacy obligations, complete the orderly disposition or closure of non-core studios, maintain uninterrupted operations at the viable studios, preserve the value of their membership relationships and workforce, and propose a plan that provides creditors with a recovery greater than would be available through a disorderly shutdown of the entire enterprise.” The company is looking to reorganize around 16 operating studios, according to the case management summary.

The MFG debtors are reviewing whether there are claims against former management, landlords, vendors or other third parties, including “the circumstances surrounding site selection, development obligations, franchise support, studio construction, membership reporting and billing, payroll administration, accounting, and other prepetition conduct.”

Womble Contracting Inc. dba Womble Co. Inc., which provides coatings for the pipeline industry, filed in the Southern District of Texas. Womble attributes the filing to a reduction in pipeline-projects because of the pandemic followed by supply chain disruptions and shortages, and more recently, “tariffs and related trade conditions affecting imported steel products have increased uncertainty and costs within the pipeline supply chain.” The company is also embroiled in a dispute on its lease for its pipe-coating and storage yard. The company is keeping its options open to pursue a restructuring, sale, recapitalization or “other value-maximizing strategy as circumstances warrant.”

Sale-related events for the week’s cases are recapped below: