Franchise Group, parent company of The Vitamin Shoppe, Pet Supplies Plus and Buddy’s Home Furnishings, filed for Chapter 11 bankruptcy on Sunday in the U.S. Bankruptcy Court for the District of Delaware.
The company pre-arranged a debt-for-equity restructuring plan involving approximately 80 percent of its first lien debt lenders. Under that plan, which is subject to court approval, the first lien lender group would come out with 100 percent of the equity. Already the lenders have committed $250 million in debtor-in-possession financing so the company can continue to operate.
Court papers list Franchise Group as having $1.99 billion in pre-petition debt.
As part of this process, the firm also plans to conduct a marketing process via court-approved bidding procedures, “which will ensure that the company is maximizing value and best positioning its operating businesses for long-term success as it pursues confirmation of the agreed-upon prearranged Chapter 11 Plan,” the company said in a statement Sunday.
The group will shut down American Freight, which sells furniture, mattresses, new and out-of-box home appliances and home accessories at discount prices. Closing sales at stores and online begin Tuesday. But the company has already been downsizing. In February, the Franchise Group sold its Sylvan Learning business to raise money and last year sold its stake in discount home and appliance retailer Conn’s, which earlier this year went bankrupt and decided to close all of its stores.
Franchise Group has suffered under a heavy debt load with poor-performing stores, inflation, rising interest rates and a federal investigation into the financial dealings of its former chief executive officer, Brian Kahn, which triggered concerns among lenders. Across the U.S., Franchise Group has 2,200 stores, including mostly corporate-owned and some franchised locations, and approximately 11,900 total employees. Franchised locations of the group’s brands are not part of the proceedings.
“Today’s announcement to de-lever our balance sheet is a pivotal step forward in enabling our market-leading businesses Pet Supplies Plus, The Vitamin Shoppe and Buddy’s Home Furnishings to realize their full potential,” said Andrew Laurence, the group’s president and CEO. “Each of these businesses has a demonstrated value proposition and provides great products and services to customers, which they will continue to do seamlessly during this process. Strengthening [Franchise Group’s] balance sheet will allow us to enhance our support for these businesses as they advance their growth trajectories.”
The Vitamin Shoppe issued a separate statement which characterized that business as “healthy and strong, with sustainable cash flow and dynamic growth initiatives that remain in motion…The debt obligations of our parent company necessitated this strategic financial step, which is not reflective of The Vitamin Shoppe’s own financial stability, ongoing commitment to serving our communities, and promising roadmap for future growth,” the statement indicated.
At this point, it’s unclear whether The Vitamin Shoppe will be part of the court supervised auction process. Based in Secaucus, N.J., The Vitamin Shoppe sells nutritional solutions, including vitamins, minerals, specialty supplements, herbs, sports nutrition, homeopathic remedies, green living products, and natural beauty aids through proprietary brands and approximately 700 national brands. The Vitamin Shoppe operates approximately 680 company-operated retail store locations and 20 franchised locations across the U.S. and Canada, and vitaminshoppe.com. It has an estimated annual volume of about $1 billion.
Willkie Farr & Gallagher and Young Conaway Stargatt & Taylor are serving as legal counsel, AlixPartners officials are serving as financial adviser and chief restructuring officer, and Ducera Partners is serving as investment banker to the company. Paul Hastings is serving as legal counsel and Lazard is serving as investment banker to the first lien ad hoc group.
In August 2023, Franchise Group went private in a transaction led by Kahn, who has been under federal investigation related to possible fraud, and certain other business dealings related to Prophecy Asset Management, which collapsed in the wake of a securities fraud case. Kahn has not been formally charged, but he stepped down as the firm’s CEO in January. Kahn’s situation, according to court papers, impaired Franchise Group’s ability to sell or otherwise monetize any of its other businesses, to reduce debt and borrow.
