Steak ‘n Shake avoids bankruptcy, accuses lender of attempted buyout

Steak ‘n Shake seems to have avoided bankruptcy, according to a Bloomberg report. But it could still be taken to court.

Only now, the burger chain is going on the offensive.

Steak ‘n Shake is suing Fortress Investment Group in Indiana, accusing the company of abusing confidential business information in an attempt to gain control of Steak’ n Shake’s assets. According to Bloomberg and the filings, Fortress obtained financial information on Steak ‘n Shake in mid-2020 during negotiations for a possible real estate deal. Steak ‘n Shake said Fortress turned around and used the information to try to buy her loans, force her into bankruptcy and acquire her through a credit offer.

The news came shortly after Bloomberg reported that Steak ‘n Shake had bought and withdrawn its $ 220 million loan balance owed in March. “People with knowledge of the payment,” said Steak ‘n Shake finalized its buyout from lenders on February 19.

According to previous reports, Steak ‘n Shake hired advisors FTI Consulting Inc. and law firm Latham & Watkins to prepare for a possible Chapter 11 filing while the company negotiated with the debt holders.

One of those investors was Fortress Investment Group.

Steak ‘n Shake struggled to generate enough capital to update assets from full service to counter service. And he tried to raise funds by selling real estate held at auction when it put 15 theaters on sale in August.

According to Bloomberg, no sale has taken place. Parent company Biglari Holdings Inc. would not guarantee the loan in a November filing and admitted it would struggle to repay or refinance the debt. Steak ‘n Shake’s reportedly explored possible financial restructuring as early as January, when news surfaced in The Wall Street Journal.

The $ 220 million loan had been reduced to $ 153 million and was due on March 19.

Going back to Monday’s lawsuit, Fortress and its affiliates bought more than half of Steak ‘n Shake’s senior loan owed in March 2021 after these real estate talks began. It was a position with a face value of approximately $ 89 million. Steak ‘n Shake said in the complaint that Fortress was threatening to use its majority position to drive the company to Chapter 11.

He said Fortress planned to use its rights as the majority owner of the loan to buy, at a discount, the real estate that was the collateral for the debt. The properties included those reviewed in the 2020 negotiations, Bloomberg said.

As Steak ‘n Shake prepared for a potential bankruptcy filing, he tried to negotiate the repayment with Fortress. According to the documents, Steak ‘n Shake paid $ 102 million to repay the debt.

The company said the Fortress program had cost it “millions of dollars and countless hours of management attention at a critical time.”

Steak ‘n Shake added the company, “believed they were providing this information to a potential counterparty to a real estate transaction, not a vulture investor. “

For months, he bought back portions of the loan on the open market at a lower price than other investors. However, as the loan’s maturity nears, Fortress said it would accept no less than full value, according to the lawsuit.

In From Steak ‘n Shake’s perspective, the information he provided to Fortress regarding the 15 properties for sale earlier allowed the company to extrapolate the total value of its real estate and other details regarding the company value.

Steak ‘n Shake seeks damages related to the alleged Fortress takeover attempt.

Fortress bought CraftWorks from bankruptcy in May with a $ 93 million credit offer and the bankrupt Krystal fast food chain for about $ 48 million before that.

About Darnell Yu

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