October 30, 2020 – FIC Restaurants, Inc. and four affiliated Debtors (dba Friendly's; “Friendlys” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 20-12807. The Debtors, operators of a chain of casual dining restaurants with a focus on ice cream, are represented by Matthew P. Ward of Womble Bond Dickinson (US) LLP. Further board-authorized engagements include (i) Carl Marks Advisory Group LLC as financial advisors, (ii) Duff & Phelps Securities, LLC as mergers and acquisitions advisor and (iii) Donlin, Recano & Company, Inc. as claims agent. 

The Debtors’ lead petition notes between 1,000 and 5,000 creditors; estimated assets between $10.0mn and $50.0mn]; and estimated liabilities between $50.0mn and $100.0mn. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) US Foods Inc ($503k trade claim), (ii) Engie Insight Services ($229k trade claim) and (iii) SMS Assist LLC ($32k trade claim).

In a press release announcing the filing, the Debtors “announced an agreement to sell substantially all of its assets to Amici Partners Group, LLC ('Amici'), an entity comprised of experienced restaurant investors and operators who have been involved with some of the most well-known QSR and casual dining chains for more than 25 years. Amici is currently affiliated with BRIX Holdings, a multi-brand franchising company with national and international experience in the restaurant industry. 

Nearly all of Friendly’s 130 corporate-owned and franchised restaurant locations are expected to remain open subject to COVID-19 limitations, and the transaction is expected to preserve thousands of corporate-owned restaurant team member and franchisee jobs.

To facilitate an efficient sale process, Friendly’s has filed voluntary petitions for relief under chapter 11 of the United States Bankruptcy Code, as well as a motion seeking approval of the sale to Amici and a chapter 11 plan that contemplates payment of all allowed claims. Friendly’s has asked the Bankruptcy Court for a hearing in mid-December to approve the sale and confirm the chapter 11 plan, with the closing and plan taking effect concurrently as soon as possible thereafter.”

The Debtors concede that the purchase price for their assets "is not substantial" (a base purchase price of $2.0mn, adjusted for things like the "Coke Prebate," see further below), but the sale "allows the business to continue, the Friendly’s Restaurants brand and thousands of jobs across the corporate-owned and franchised locations to be saved."

The following is summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement):

• Class 1: (“Other Priority Claims”) is unimpaired deemed to accept and not entitled to vote on the Plan. The estimated amount of claims is $0 and estimated recovery is 100%.
• Class 2A: (“Senior 2019 Credit Facility Secured Claims”) is unimpaired by consent and not entitled to vote on the Plan. The estimated amount of claims is $43.38mn and estimated recovery is N/A. As part of the comprehensive settlements and substantial contributions under the Plan, the Holder of the Allowed Senior 2019 Credit Facility Secured Claim shall, after the Effective Date of the Plan, (i) fund all binding commitments as Plan Sponsor to the Plan pursuant to availability  under the Senior 2019 Credit  Facility, and then waive, release and discharge such Claim and all Liens on the Debtors’ assets pursuant to the Senior 2019 Credit Facility; and (ii) except as otherwise provided in the Plan, forgo any and all distributions under the Plan on account of such Claim.
• Notwithstanding anything to the contrary herein, in the event all Allowed (i) Claims in Classes 1, 3; and 4; and (ii) Administrative Claims and Priority Tax Claims, have in each case been satisfied in full under the Plan, and all other obligations under the Plan (including Statutory Fees) have been satisfied, any remaining funds and/or other assets, including, without limitation all Causes of Action (including those identified on the Schedule of Retained Causes of Action), held by the Debtors or Reorganized Debtors shall vest in and be transferred to the Plan Sponsor.
• Class 2B: (“2018 Credit Facility Secured Claims”) is unimpaired by consent and not entitled to vote on the Plan. The estimated amount of claims is $32.1mn and estimated recovery is N/A. As part of the comprehensive settlements and substantial contributions under the Plan, the Holder of the Allowed 2018 Credit Facility Secured Claim shall, after the Effective Date of the Plan, (i) waive, release and discharge such Claim and all Liens on the Debtors’ assets pursuant to the 2018 Credit Facility; and (ii) forgo any and all distributions under the Plan on account of such Claim.
• Class 2C: (“2011 Credit Facility Secured Claims”) is unimpaired by consent and not entitled to vote on the Plan. The estimated amount of claims is $12.4mn and estimated recovery is N/A. As part of the comprehensive settlements and substantial contributions under the Plan, the Holder of the Allowed 2011 Credit Facility Secured Claim shall, on the Effective Date of the Plan, (i) waive, release and discharge such Claim and all Liens on the Debtors’ assets pursuant to the 2011 Credit Facility; and (ii) forgo any and all distributions under the Plan on account of such Claim.
• Class 3: (“Other Secured Claims”) is unimpaired, deemed to consent and not entitled to vote on the Plan. The estimated amount of claims is $7.12mn (this reflects the BMO Letter of Credit, which is fully cash collateralized.and estimated recovery is N/A. Each Holder of an Allowed Class 3 Other Secured Claim shall receive in full and final satisfaction, settlement, and release of and in exchange for such Allowed Class 3 Claim: (A) return  of the collateral  securing  such Allowed Other Secured Claim; or (B) Cash equal to the amount of such Allowed Other Secured Claim; or (C) such other, less favorable treatment which the Debtors, the Plan Sponsor, and the Holder of such Allowed Other Secured Claim have agreed upon in writing.
• Class 4: General (“Unsecured Claims”) is unimpaired, deemed to consent and not entitled to vote on the Plan. The estimated amount of claims is $3.83mn (this includes an estimated amount of currently unliquidated and contingent claims that may arise pursuant to the rejection of Executory Contracts and Unexpired Leases.) and estimated recovery is 100%. Each Holder of an Allowed General Unsecured Claim shall, in exchange for full and final satisfaction, settlement, release, and discharge of such Claim, receive at the sole option of the Debtors and the Plan Sponsor either: Payment in Cash in the full amount of its Allowed General Unsecured Claim; or Such other treatment as would render such Claim Unimpaired pursuant to section 1124 of the Bankruptcy Code.
• Class 5: (“Interests”) is unimpaired, deemed to consent and not entitled to vote on the Plan.

Events Leading to the Chapter 11 Filing

The Disclosure Statement provides: “The Debtors in recent years encountered many of the same performance issues faced by fast-casual dining sector as a whole, including substantial headwinds caused by shifting demographics, increased competition and rising costs. The business, which consistently lost money, relied on borrowings under the Credit Facilities as the only way to sustain operations. The Debtors recognized that there was an urgent need to stem cash burn and restore the beloved Friendly’s Restaurant brand to profitability, especially as availability of continued credit was not guaranteed.

First commenced several years ago, the Debtors implemented restructuring initiatives focused on closing unprofitable locations, reducing occupancy and other fixed costs and improving the business at the remaining restaurants by delivering menu innovation, re-energized marketing, and a better overall experience for customers. 

… it soon became apparent to the Debtors and their advisors that a sale of the business was the only long-term viable path forward to preserve the Friendly’s Restaurant brand, save jobs, protect franchisees, and mitigate the negative impact of the Debtors’ distressed financial condition on creditors. And the Debtors’ decision to pursue a strategic restructuring in the form of a sale was only affirmed when, like many restaurant businesses, the Debtors’ incremental progress was sharply interrupted, or better stated halted, by the catastrophic impact of COVID-19 that has caused a dramatic decline in revenue due to the need to close dine-in operations for several months at all franchise and corporate-owned locations.”

Marketing Efforts

The Disclosure Statement provides: "On November 26, 2019, the Debtors’ investment banker, Duff & Phelps Securities, LLP ('Duff & Phelps'), kicked off a marketing process by sending out one- page “teasers” to 40 potential strategic buyers and 76 potential financial buyers. This initial outreach resulted in non-disclosure agreements being entered with 11 strategic buyers and 22 financial buyers for these parties to gain access to additional information regarding the Debtors’ business.

The 2019 marketing process carried over to 2020 when, on January 22, 2020, Duff & Phelps received five initial indications of interest. In February and March 2020, Duff & Phelps coordinated meetings between the Debtors’ management and the remaining pool of potential buyers, and also provided these parties with access to a virtual data room. Duff & Phelps, however, briefly paused the marketing process as COVID-19 began to spread rapidly and the Debtors’ restaurants were forced to close and shelter-in-place orders were issued. When discussions resumed only one of the parties, Brix Holdings, LLC (which was later designated the Purchaser as the buyer of the Debtors’ assets), submitted a letter of intent for the purchase of the Debtors’ assets subject to a bankruptcy filing of the sellers and approval of the transaction on a free and clear basis pursuant to section 363 of the Bankruptcy Code.

Duff & Phelps and the Debtors spent several months in late Spring and Summer 2020 negotiating the Purchaser’s letter of intent, which was ultimately executed on August 10, 2020. Negotiations then continued apace on the Purchase Agreement. On November 1, 2020, the Purchase Agreement was executed by the Purchaser.

While the purchase price is not substantial*, the Sale if approved in these Chapter 11 Cases allows the business to continue, the Friendly’s Restaurants brand and thousands of jobs across the corporate-owned and franchised locations to be saved, the franchisees to be protected and served, and the overall claims pool to be dramatically reduced by virtue of the Purchaser’s assumption of numerous key contracts and the overwhelming majority of the restaurant leases.

*The asset purchase agreement filed at docket No. 19 provides: "the payment of an amount in cash (the 'Cash Payment') equal to (A) $1,987,500 ('Base Purchase Price'), plus (B) the Closing Inventory, plus(C) the Closing Restaurant Cash, plus (D) Closing Prepaid Expenses, plus (E) Closing Security Deposits, less (F) the amount by which Closing Unredeemed Gift Cards exceeds $1,263,000, if any, less (G) the Closing Restaurant Deferred Rent, less (H) the Bloomfield Rent Adjustment (if applicable), less (I) the Coke Prebate; and(ii)the assumption by Buyer of the Assumed Liabilities."

Prepetition Indebtedness

As of the Petition date, the Debtors’ capital structure consists of outstanding funded-debt obligations in the aggregate amount of approximately $87.88mn, and unsecured trade indebtedness of $1.08mn.

About the Debtors

According to the Debtors: “Founded in 1935 as a single ice cream shop in Springfield, Massachusetts, the Debtors grew to a chain of casual dining restaurants that is widely regarded as an authentic, yet affordable, dining experience, with a broad menu offering and hallmark ice cream dessert selection catering to all family members. In its 85-year history, the iconic Friendly’s Restaurants brand name became associated with high quality food, customer service, good times and great memories.

The Debtors’ restaurants hallmark high-quality desserts, including its iconic premium ice cream product offerings. To differentiate itself from other family casual restaurants, the Debtors’ premium ice cream products have always been a focal point of the Friendly’s menu as the highlight of any meal. Customers have cited the Debtors’ ice cream products as the key reason for choosing to dine at Friendly’s.

On a go forward basis, the Debtors will have approximately 50 corporate restaurants and serve as franchisor on another approximately 80 locations. They currently employ approximately 34 full-time employees at the Debtors’ Wilbraham, Massachusetts headquarters and 1,664 other part-time and full-time restaurant employees and restaurant and regional managers. None of the Debtors’ employees unionized or are covered by a collective bargaining agreement."

Corporate Structure Chart

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