Bighorn Restaurants, LLC – Operator of 108 Hardee’s Restaurants Files for Bankruptcy with Over $20mn of Funded Debt Citing Multiple COVID Complications, Lines Up (Currently Un-Named) Stalking Horse in What Will Be Expedited Sale Process

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May 4, 2023 – Bighorn Restaurants, LLC and five affiliated debtors (together “Bighorn” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Colorado, lead case No. 23-11919 (Judge Michael E. Romero). The Debtors, who are franchisees in respect of @108 Hardee’s restaurants* in Alabama, Florida, Georgia, South Carolina, Kansas, Missouri, Wyoming and Montana, are represented by James T. Markus of Markus Williams Young & Hunsicker. Further Board authorized appointments include: (i) Morris Anderson & Associates, LTD as financial advisors, (ii) Brookwood Associates, LLC as investment bankers and (iii) BMC Group as claims agent.

* The Debtors, who are down to the current 108 restaurants having already closed 39, are part of a larger group of affiliated companies (the "Capstone Group”) that operates and franchise over 226 restaurants in 16 states through a variety of brands, including Hardee’s and Carl’s Jr. Each of the Restaurants is subject to its own Restaurant franchise agreement, by and between CKE Restaurant Holdings, Inc. (“CKE”) and the applicable operating subsidiary Debtor, Empire, Heartland, Bighorn, and Atlantic Star (collectively, the “Franchise Agreements”).

The Debtors’ lead petition notes between 200 and 1,000 creditors; estimated assets between $1.0mn and $10.0mn; and estimated liabilities between $10.0mn and $50.0mn. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) MBM Corporation ($73k trade claim), (ii) BBBillings, LLC ($39k trade claim) and (iii) Sawtooth Center, LLC($37k trade claim).

Goals of the Chapter 11 Filing

Dooley Declaration (defined below) states: "The Debtors filed these chapter 11 cases to complete the contemplated Sale Transaction on an expedited basis."

Prepetition Marketing Efforts and Selection of (Currently Un-named) Stalking Horse

The Dooley Declaration provides: "Approximately six weeks prior to filing, the Debtors engaged Brookwood Associates, LLC ('Brookwood') to act as investment banker…to market the Debtors’ assets (the 'Prepetition Marketing Process') in connection with the sale of all or a part of the Debtors (the 'Sale Transaction')….Prior to the Petition Date, the Debtors entered into an Asset Purchase Agreement with that certain buyer as the proposed initial 'stalking horse” bidder to purchase substantially all of the Debtors’ assets subject to this Court’s approval and in accordance with 11 U.S.C. § 363….the Debtors intend to seek approval of certain critical path dates regarding the Debtors’ need to close on the sale of its assets by August 2023….The Debtors’ failure to expeditiously move toward a sale and address assumption and assignment of certain unexpired leases would cause the Debtors’ estates immediate and irreparable harm by forcing the Debtors to assume or reject unexpired leases for non-residential real property and take the risk that any assumed leases would be assigned to a willing buyer."

Events Leading to the Chapter 11 Filing

In a declaration in support of first day filings (the “Dooley Declaration), Daniel F. Dooley, the Debtors’ financial advisor commented: “Over the past several years, and particularly as a result of the COVID-19 pandemic, franchisees system-wide have experienced declining foot traffic. The Debtors’ business also suffered significantly from loss of foot traffic, resulting in declining revenue without proportionate decreases in rental obligations, debt service, and other liabilities. External pressures resulting from the pandemic, including recent increases in wages and the cost of labor, shipping and food inflation, decreased availability of labor, and inflation generally have driven the Debtors’ cash flow issues.

Many of the Restaurants were underperforming restaurants which demonstrated an inability to grow annual volumes. These lower volumes resulted in smaller profit margins and thus greater sensitivity to the recent dramatic rise in labor, commodity prices, and maintenance costs….As a result, although certain of the Restaurants are profitable, others were operating at a loss for a prolonged period of time, resulting in the Debtors’ inability to meet financial obligations timely."

Prepetition Indebtedness

The Debtors are party to a December 2020 Loan and Security Agreement (the “Credit Agreement”) with Cadence Bank as lender. As of the Petition date, the Debtors are in default in respect of the Cadence facility and owe Cadence $22,121,060, plus accrued and unpaid interest, etc.

As at the Petition date, the Debtors also have @$6.0mn of unsecured debt, which primarily consists of (i) amounts due to franchisor CKE pursuant to the franchise agreements for royalties, advertising contributions, etc, (ii) amounts due landlords in respect of leases and (iii) "certain more limited prepetition amounts…owed to vendors."

About the Debtors

The Dooley Declaration provides: "Together, the Debtors constitute one of the largest current franchisees of Hardee’s restaurants. The Debtors formerly operated over 145 Hardee’s restaurants; the Debtors recently closed 39 restaurants and currently operate 108 Hardee’s restaurants (the "Restaurants'). The Restaurants span the states of Alabama, Florida, Georgia, South Carolina, Kansas, Missouri, Wyoming and Montana.

Corporate Structure Chart

Debtors Summit Holdings, Empire, Heartland, Bighorn, and Atlantic Star are Delaware limited liability companies formed under the laws of the State of Delaware. Debtor Summit Development is a Colorado limited liability company formed under the laws of the State of Colorado. Summit Holdings is a holding company and the sole member and 100% owner of Debtors Empire, Heartland, Bighorn, Atlantic Star, and Summit Development. The sole member and 100% owner of Summit Holdings is LB Summit, LLC. LB Summit, LLC is managed by Dewey R. Brown and Todd Pahl. Dewey R. Brown and Todd Pahl also manage Summit Holdings,
Empire, Heartland, Bighorn, Atlantic Star, and Summit Development.


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