CASE SUMMARY: FAT Brands Files Chapter 11 to Restructure Whole-Business Securitization Structure, Intends to Mediate DIP Financing After Rejecting Ad Hoc Group Offer

Restaurant chain franchisor FAT Brands Inc. and dozens of affiliates filed long-anticipated freefall chapter 11 cases in the U.S. Bankruptcy Court for the Southern District of Texas yesterday, Jan. 26. The debtors seek authority to use prepetition securitization noteholders’ cash collateral for four weeks while mediating with noteholders toward a possible DIP facility to fund a comprehensive reorganization; the ad hoc group of “whole company,” or WBS, securitization noteholders has not yet consented.

The debtors’ byzantine organizational and capital structure reflects four WBS securitization transactions whereby four special-purpose finance vehicles issued fixed-rate notes for approximately $1.4 billion, secured by substantially all of the debtors’ revenue-generating assets, which are held by affiliates of the issuers that guaranteed the notes. The bulk of the debtors’ revenue consists of franchise fees payable by restaurant franchisees.

Two corporate entities serve as managers of the securitization issuers and their affiliates and receive management fees (ahead of payment of debt service) in exchange for providing “key management services,” including “franchise administration, royalty billing, collection, and remittance, marketing fund administration, brand management, supply chain support, intellectual property policing, development and site approval, and operational oversight.”

The noteholders may retain the ability to replace the corporate entities with new managers to continue providing services to the franchisees, but the debtors maintain in the cash collateral motion that the potential loss of the services currently provided by the corporate entities if cash collateral authorization is not granted “cannot be mitigated by appointing a third-party manager.”

“Even if such a transition were feasible, the time and expense that would be required to implement it would, in my view, significantly disrupt operations, and impose comparable, if not greater, costs for the Debtors and their estates,” Chief Restructuring Officer John DiDonato of Huron Consulting says.

A fifth securitization facility, the “Resid Notes,” is secured by the management fees due under the other four securitization structures and approximately 86% of the outstanding Class A common stock of publicly traded affiliate Twin Hospitality – but not, according to the debtors, the controlling Class B common stock of Twin Hospitality. Resid noteholder 3|5|2 Capital sued FAT Brands on Jan. 22 seeking to compel turnover of the Class B common stock as collateral.

The debtors maintain that postpetition management fees due under the four WBS securitization agreements are also not encumbered by the Resid noteholders’ liens and will be used to supplement the cash collateral of the other four securitization silos.

“While there are certain specified operating expenses that are excluded from the collateral package provided under the WBS structures,” the debtors say, “a substantial portion of the funding for key operating expenses,” including payroll for “hundreds of employees,” requires use of cash collateral in addition to unencumbered funds. If the managers cannot use cash collateral to pay these expenses, the debtors assert, the value of the securitization silos “will be immediately and irreparably compromised.”

According to the debtors, restructuring discussions with a group of holders of the WBS notes from the four operating securitizations represented by White & Case as counsel and Houlihan Lokey as investment banker began last summer, and discussions with holders of Resid notes commenced in late 2025. However, the debtors were “unable to reach an agreement regarding a potential restructuring” before the petition date and now seek to mediate with creditors “on an expedited timeline” at the beginning of their chapter 11 cases.

The first day hearing has been scheduled for Thursday, Jan. 28, at 5 p.m. ET. The debtors also filed an emergency motion to pay approximately $780,000 in prepetition employee expenses for nonfranchised restaurants (along with a supporting declaration by DiDonato), which is scheduled for a hearing today at 1 p.m. ET.

The case has been assigned to Judge Alfredo R. Perez (case No. 26-90126). The debtors are represented by Latham & Watkins and Hunton Andrews Kurth as co-counsel, Huron Consulting as financial advisor and GLC Advisors as investment banker. The WBS ad hoc group is represented by White & Case as counsel and Houlihan Lokey as investment banker.

Prepetition Capital Structure

The debtors’ prepetition capital structure is below:

The Royalty, GFG, Fazoli and Twin issuers’ obligations under their respective notes are guaranteed and secured by substantially all the assets of their respective securitization guarantors, as discussed more fully below. The Resid notes are secured by a security interest in the future management fees and residual amounts paid to FAT Brands by the other securitization entities.

The Twin Peaks equipment financing agreements are secured by certain equipment of the applicable equipment borrower.

The Riverside refi loan is secured by substantially all of the assets of the Riverside refi obligor, including the tangible and intangible assets of 28 Hot Dog on a Stick company-owned restaurants.

The Waterfall loan is secured by more than 8 million shares of Class A common stock in Twin Hospitality owned by FAT Brands, and all proceeds, products, accessions, rents and profits of or in respect of the
pledged stock.

According to the first day declaration, the debtors had approximately $2.1 million of unrestricted cash on hand and approximately $19.9 million of cash held in restricted accounts not under the debtors’ control as of Jan. 23.

The debtors’ organizational chart is below:

Background / Events Leading to Bankruptcy Filing

Business Operations

According to DiDonato’s first day declaration, the company formed FAT Brands in March 2017 as a holding company for the Fatburger, Buffalo’s Cafe and Buffalo’s Express brands. FAT Brands went public in October 2017.

After going public, FAT Brands acquired the Ponderosa and Bonanza Steakhouses, Hurricane Grill & Wings, Yalla Mediterranean, Elevation Burger, Johnny Rockets, Round Table Pizza, Hot Dog on a Stick, Great American Cookies, Pretzelmaker, Marble Slab Creamery, Twin Peaks, Native Grill & Wings, Fazoli’s and Smokey Bones brands.

After acquiring Smokey Bones, FAT Brands contributed that brand to subsidiary Twin Hospitality, which also owns the Twin Peaks brand. In January 2025, FAT Brands distributed approximately 5% of fully diluted shares of Class A common stock of Twin Hospitality to FAT Brands’ common shareholders, taking that entity public. Approximately 95% of the Class A common stock and 100% of controlling Class B common stock of Twin Hospitality are owned by FAT Brands.

The debtors have 670 franchise partners with restaurants operating across 30 countries, according to DiDonato. The debtors have about 7,500 employees, including 1,600 full-time employees. Most of those employees work in the Twin Peaks and Smokey Bones restaurants directly owned by Twin Hospitality, while the remainder work for FAT Brands in a management capacity.

DiDonato explains that the debtors operate “primarily as a franchisor for the brands owned by the direct and indirect subsidiaries of the Securitization Issuers.” “The Debtors generate most of their revenue – approximately $86.3 million in royalties and $5.7 million in franchise fees in 2025 – by collecting certain franchise fees, royalties, and other fees associated with providing certain services to franchised restaurants in accordance with the Franchise Agreements,” DiDonato says.

The debtors provide services to franchisees including “operations, supply chain, training, and new store opening support,” “administrative and financial services,” “sales and marketing functions,” “technology support,” “governance, risk management, and compliance support” and “production and supply services through the Atlanta Factory,” according to DiDonato.

The debtors directly own more than 150 Fazoli’s, Hot Dog on a Stick, Fatburger, Smokey Bones and Twin Peaks restaurants. The company-owned restaurants generated approximately $389.4 million of revenue in 2025.

The debtors also own a manufacturing facility in Atlanta that “supplies raw cookie dough to certain of their quick service restaurant brands and dry pretzel mix to Pretzelmaker franchisees.” The Atlanta factory also produces products indirectly distributed to Fazoli’s, Johnny Rockets and Elevation Burger locations. According to DiDonato, the Atlanta factory is currently operating at 40% capacity. In 2025, the Atlanta factory generated approximately $39.4 million of revenue.

Finally, the debtors own a brewery for Twin Peaks in Irving, Texas, to brew the “signature beer” sold at Twin Peaks restaurants in Texas.

Securitization Structure

“FAT Brands provides management services to the Securitization Entities, including both the FAT Securitization Entities and the Twin Securitization Entities,” DiDonato explains. DiDonato provides the following overview of the five operational securitization entities and their relationship with the corporate entities:

FAT Brands is governed by a board consisting of 15 directors, including two new independent directors, Patrick Bartels and Neal Goldman, appointed immediately prior to the filing and serving together on a special restructuring committee. Twin Hospitality is governed by a board consisting of six directors, including Bartels and Goldman.

“Substantially all of the Debtors’ material operating assets are held by the Securitization Guarantors that are the direct and indirect subsidiaries of four of the Securitization Issuers,” DiDonato says: Twin Hospitality I LLC, the “Twin Issuer”; FAT Brands Royalty I LLC, the “Royalty Issuer”; FAT Brands GFG Royalty I LLC, the “GFG Issuer”; and FAT Brands Fazoli’s Native I LLC, the “Fazoli’s Issuer.”

DiDonato describes the four operating securitization silos as follows:

• Royalty silo: The Royalty issuer’s subsidiaries own the Bonanza Steakhouse, Buffalo’s Cafe, Buffalo’s Express, Elevation Burger, Fatburger, Hurricane Grill & Wings, Johnny Rockets, Ponderosa Steakhouse and Yalla Mediterranean brands. The Royalty Silo includes about 502 franchised locations. These entities generated adjusted EBITDA of $8.7 million in the 12 months ended December 2025.
• GFG silo: The GFG issuer’s subsidiaries own the Great American Cookies, Marble Slab Creamery, Pretzelmaker, Round Table Pizza and Hot Dog on a Stick brands. The GFG silo includes about 1,175 franchised locations and the Atlanta factory. These entities generated adjusted EBITDA of $31.5 million in the 12 months through December 2025. Approximately $15.4 million of adjusted EBITDA was generated from the Atlanta factory in 2025.
• Fazoli’s silo: The Fazoli’s issuer’s subsidiaries own the Fazoli’s and Native Grill & Wings brands. The Fazoli’s silo includes about 143 franchised locations and 56 company-owned restaurants. These entities generated adjusted EBITDA of negative $700,000 in the 12 months ended December 2025.
• Twin silo: The Twin issuer’s subsidiaries own the Twin Peaks and Smokey Bones brands. The Twin silo includes about 79 franchised locations and 66 company-owned restaurants. These entities generated adjusted EBITDA of $16.7 million in the 12 months ended December 2025.

FB Resid Holdings I LLC, the “Resid Issuer,” does not have any subsidiaries or operating assets. Instead, the Resid issuer has a pledge of future management fees payable to FAT corporate entities as manager of the other four silos, residual cash flow that remains at the other securitization entities after debt service obligations are satisfied and FAT Brands’s ownership of Twin Hospitality’s Class A common stock. According to DiDonato, the management agreements between the other securitization entities and FAT corporate entities are not themselves pledged to support the notes issued by the Resid issuer.

“The operational know-how for the FAT Brands Silos also rests” with the FAT corporate entities, DiDonato adds. “As such, the Securitization Entities cannot operate in a functional manner” without support from the FAT corporate entities, including brand recognition, marketing, advertising, technology, supply-chain support and payment processing.

The management fees paid to the FAT corporate entities total approximately $1.5 million per month, including about $200,000 from the Royalty silo, $413,000 from the GFG silo, $542,000 from the Fazoli’s silo, $25,000 from the Resid issuer and $292,000 from the Twin silo. In 2024, DiDonato says, these services cost the corporate entities “approximately $8 million per month and close to $96 million per year.”

DiDonato provides the following summary of the waterfall for proceeds of the securitization entities under the notes:

Events Leading to Chapter 11

According to DiDonato, the company’s operating revenues “are consistent with comparable companies” in the industry and the brands “remain popular with customers,” but the debtors’ capital and operating cost structure has “become unsustainable.” The management fees payable to the corporate entities “do not cover the operating costs in ordinary industry conditions,” and industry conditions are currently extraordinary because of “inflation and persistent economic uncertainty prompting low- and middle-income consumers to reduce discretionary spending,” DiDonato explains.

The debtors’ import of products for the Atlanta factory has also been subject to tariffs, “which increased the Debtors’ cost of producing their cookie dough products.” The “lasting effects of the COVID-19 pandemic and the ongoing war in Ukraine have disrupted supply chains, which has raised the prices for the Debtors’ inputs,” and “labor costs have increased due to a tight national labor market for food service workers.”

“As a result of changes in dining preferences, global economic uncertainty, and tariffs that increase the cost for potential franchisees to open a new franchise, the rate of such openings has slowed, and the Debtors have not met their projections,” DiDonato concludes. “In addition, delays in franchisees opening new locations on schedule have materially impacted the Debtors’ revenue growth.”

DiDonato also points to a May 2024 federal criminal indictment and Securities and Exchange Commission civil enforcement action as factors in the company’s decline. “The DOJ Suit was dismissed on August 7, 2025, and the Debtors and the SEC have reached an agreement in principle to resolve the SEC Suit, which remains subject to approval by the SEC commissioners,” DiDonato notes.

Finally, according to DiDonato, the whole-company securitization structure is “starving the business.” Under the securitization structures, residual amounts are only available to pay expenses to run the corporate debtors’ businesses after debt service payments, DiDonato continues, but the debtors “have no excess cash flow available after debt service to support such expenses,” and “liquidity has been stretched thin trying to make debt service payments and meet ordinary operating expenses.”

Since the end of 2022, penalties related to the debtors’ failure to pay the securitization notes by the applicable anticipated call dates and other issues resulted in payment of over $72 million in penalty interest and penalty amortization payments.

According to DiDonato, the FAT securitization structure is unusual in that most similar structures fully cover selling, general and administrative, or SG&A, expenses, while the debtors’ structure leaves 80% of those expenses uncovered. DiDonato provides a chart comparing the debtors’ securitization structure with other whole-company structures:

“Put simply, complying with the WBS structure at this juncture would render the Debtors unable to pay their operating expenses,” DiDonato notes. Accordingly, prior to filing, the debtors resorted to “self-help” – using revenue pledged under the securitization structure “to meet the Debtors’ business and operating expenses, including to fund payroll, consulting and legal fees, restructuring and advisory costs, and certain debt service obligations to mitigate business disruption and continue operations.”

This resulted in “events of default and manager termination events under the Securitization Notes that would permit the holders of the Securitization Notes to exercise a suite of remedies,” DiDonato concedes. “The Debtors are, thus, unable to continue operating their business in its current state or even think about investing in their brands and growing their franchises to generate cash to repay the Securitization Notes.”

Prepetition Restructuring Discussions

“Over the past two years, the Debtors have attempted to work with various members of the WBS Ad Hoc Group to restructure their outstanding obligations,” DiDonato says. In 2024, the debtors refinanced the then-existing Twin Peaks and Smokey Bones notes by issuing the Twin Notes. In the first quarter of 2025, the debtors also worked with the WBS ad hoc group to amend the Fazoli’s notes to extend the anticipated repayment date and relax financial covenants.

The debtors also tried unsuccessfully to raise money using the equity of Twin Hospitality, and cut spending by “halting common equity dividends, accruing preferred dividends, stopping cash interest payments on preferred equity put agreements, reducing personnel headcounts, and reducing certain corporate overhead spending.”

Since the summer of 2025, the debtors and WBS ad hoc group have discussed “one or more potential transactions to address the Debtors’ liquidity and capital structure challenges,” but those discussions did not lead to an agreement before the petition date.

“From these discussions, it became clear that an out-of-court restructuring was not feasible because a restructuring to make the capital structure sustainable would likely require unanimous creditor approval,” DiDonato says. Additionally, the WBS ad hoc group indicated that, absent a chapter 11 filing, it would exercise default remedies and seize the operating businesses, including by appointing a new manager to replace the corporate entities.

Prior to filing, the debtors “ran a preliminary marketing process in search of financing,” with investment banker GLC soliciting proposals for priming, junior or unsecured postpetition financing from more than 27 potential lenders. Eight of them executed nondisclosure agreements and are analyzing diligence, but to date the debtors have not received any actionable financing proposals.

The debtors received a DIP proposal from the WBS ad hoc group, DiDonato adds, but the debtors, in their business judgment, “determined that the proposal and related restructuring terms were not actionable. The Debtors and their advisors intend to continue the process postpetition on an expedited timeline.”

The debtors’ largest unsecured creditors are as follows:

10 Largest Unsecured Creditors
Creditor	Location	Claim Type	Amount
Sysco	Houston	Trade	$   4,968,934
Enliven LLC	Franklin, Tenn.	Trade	4,613,117
Stratford Holding LLC	New York	Unliquidated Litigation	3,980,000
Gibson Dunn & Crutcher LLP	Los Angeles	Trade	2,566,869
Mintz, Levin, Cohn, Ferris, Glovsky, and Popeo PC	Boston	Trade	2,483,710
Greenberg Traurig LLP	Los Angeles	Trade	2,344,298
Hueston Hennigan LLP	Los Angeles	Trade	2,290,818
Robert G. Rosen	Katonah, N.Y.	Consulting Services	2,016,667
Cardlytics Inc	Chicago	Trade	1,750,846
Dentons US LLP	Los Angeles	Trade	1,363,747

The case representatives are as follows: