B. Riley-Backed Franchise Group Prepares to File for Bankruptcy

(Bloomberg) — Franchise Group Inc., the owner of brands including The Vitamin Shoppe and Pet Supplies Plus, is preparing to file for bankruptcy as soon as this weekend following months of losses and turmoil surrounding its founder and a major backer, according to people with knowledge of the plans.
The company, also known as FRG, will seek Chapter 11 protection with a plan in place for senior lenders including HPS Investment Partners to take control of the firm, said the people, who asked not to be identified discussing private preparations.
FRG’s troubles have been at the center of turmoil surrounding major shareholder B. Riley Financial Inc. The Los Angeles-based investment and brokerage firm helped arrange a $2.8 billion buyout of the company last year led by founder and then-Chief Executive Officer Brian Kahn.
A representative for B. Riley declined to comment while representatives for Franchise Group and HPS didn’t immediately respond to messages left after normal business hours. The credit news platform 9fin reported on FRG’s bankruptcy preparations earlier.
The group of lenders now poised to take control of FRG, which are behind approximately $1 billion in first-lien loans, has been in restructuring negotiations with the company for months, providing amendments and covenant relief as plans came together, Bloomberg previously reported.
Just months after FRG’s debt-fueled buyout by Kahn, the founder stepped down from his CEO position amid a criminal investigation into his role in a securities fraud case tied to the collapse of defunct hedge fund Prophecy Asset Management.
Trouble at FRG accelerated as its brands struggled to perform as projected, compounded by maturities on $2.6 billion in debt.
Starting in 2018, Kahn had used a series of acquisitions to create FRG with financial backing from B. Riley. In last year’s buyout, B. Riley took a 31% stake in FRG also loaned about $200 million to Kahn, with his stake in FRG used as collateral.
–With assistance from Jill R. Shah and Rick Green.
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