(Bloomberg) -- TGI Friday's Inc. management has lost day-to-day control of much of the restaurant chain's assets and functions after the company failed to file documents to bondholders on time.
A manager termination notice was issued Tuesday involving a $375 million asset-backed security sold in 2017 and backed by most of TGI Friday's revenue-generating assets, according to Kroll Bond Rating Agency. It called the termination event the first involving a so-called whole business securitization since the Great Financial Crisis. Functions taken over for now by backup manager FTI Consulting Inc. include personnel decisions and liquidating collateral if needed, Kroll said.
TriArtisan Capital Advisors, which owns TGI Friday's, declined to comment for both of them. FTI also declined to comment while Citibank, the security's trustee and who Kroll said terminated TGI Friday's as manager, didn't immediately respond.
Companies with large franchise networks like restaurants can raise capital through ABS known as whole-business securitizations. In such deals, bondholders can step in when business problems arise and metrics such as debt-to-income ratios are breached.
The assets involved in TGI Friday's deal include franchise agreements, royalties and intellectual property, Kroll said in a 2017 report.
TGI Friday's began on Manhattan's Upper East Side in the 1960s, pioneering the idea of a singles' bar and restaurant that women could go to without being on a date. The chain spread across the US, decorating restaurants with a wide array of antiques and memorabilia, often local — a look it's since shed.
But like some peers in the casual-dining space, recent years have been a struggle between rising costs and impacts related to Covid-19. TGI Friday's closed dozens of locations in 2020 while peers including Red Lobster have tumbled into bankruptcy. TGI Friday's last year saw two chief executives step down. It had some 650 locations in about 50 countries as of January.
Some of the TGI Friday's securitization was repaid earlier this year, according to S&P Global Ratings, using proceeds from selling licensing rights to Kraft Heinz Co.
The rest outstanding is under what's known as "rapid amortization," meaning available cash flow from the securitized assets — franchised restaurants in TGI Friday's case — goes toward repaying principal. Timely interest payments have continued, Kroll said.
Following the surge the prior two years in interest rates, 2024 has seen renewed interest in whole-business securitizations. At more than $8 billion, volume is the highest since 2021, led by a record $3.35 billion deal by Subway. The sandwich chain is looking to do a follow-up $2.34 billion deal.
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