Steak ‘n Shake sued for $ 8.5 million in unpaid fees

UPDATE: April 6, 2021: Wilmington Trust, National Association, has sued Steak ‘n Shake for more than $ 8.5 million in unpaid fees and interest dating back to 2018, a debt it claims the fast food chain is refusing to pay, according to a court file. It was first reported by Restaurant business Monday. These fees are part of the $ 220 million in loans from the restaurant’s parent company, Biglari Holdings, claimed it was cleared in February.

Wilmington says Steak ‘n Shake still has to pay nearly $ 3.7 million in damages and $ 4.85 million in interest accrued since 2018, despite the restaurant’s claim it has no debt.

Dive brief:

  • Steak ‘n Shake repaid the balance of the $ 220 million loan it owed to its debtors, including Fortress Investment Group, on Friday. Bloomberg reported on Monday, citing people with knowledge of the payment. By paying off his debt, which had been reduced to $ 153 million and was due on March 19, The burger chain avoided a potential Chapter 11 bankruptcy filing, which it had prepared with advisors FT Consulting Inc. and Latham & Watkins while negotiating its debt with Fortress.
  • Steak ‘n Shake then sued Fortress in Indiana court on Friday. The chain accused Fortress of plotting to take control of its assets using confidential financial information obtained last year during negotiations for a possible real estate deal to attempt to buy the loans from Steak ‘n Shake, the go into bankruptcy, then acquire it through a credit offer. , depending on the costume.
  • In the lawsuit, Steak ‘n Shake claims the alleged fortress plot “increased the cost that Steak ‘n Shake had to pay to withdraw the outstanding loans from Steak’ n Shake “and cost it “millions of dollars and countless hours of management attention at a critical time.” Fortress says Bloomberg the complaint is “unfounded”. Steak ‘n Shake and Fortress did not respond to requests for comment until press time.

Dive overview:

Steak ‘n Shake’s lawsuit against Fortress is just the latest twist in a tumultuous road in recent years in an effort to make up for lost traffic and sales. The outstanding debt on his loan fueled this race to improve performance, with CEO Sardar Biglari admitting in a annual letter to shareholders in 2019 that “tthere can be no assurance that Steak ‘n Shake will be able to restore profitability. “

Now that Steak ‘n Shake has paid off its debt, which weighed on the company’s strategy, the chain may have calmer waters. But the company’s decision to go on the offensive against its lender to collect damages and hold Fortress accountable for its alleged “bad faith conduct” is still a hurdle.

In 2019, the channel temporarily closed 107 of its 368 company-operated restaurants with plans to reopen units without table service, which has been a mainstay of the business for nearly 90 years. Instead, Steak ‘n Shake would compensate for what Biglari called a “lack of exploitation” caused by high labor costs and slow production by shifting these locations to counter service only. Steak ‘n Shake also hoped to improve its finances by selling its company-owned locations under a new franchise-partner model.

But this change has also come with new costs. In his Q2 2020 report – before the COVID-19 disruption poses another hurdle for the besieged chain – the company said moving to a counter-service model “will require significant investment in equipment.” At the time, Steak ‘n Shake planned to cover these new costs by auctioning off company-owned real estate.

In Q3 2020, the company was still looking to switch to a self-serve model amid the coronavirus that forced it to close its dining rooms, but Biglari Holdings said funds needed were limited under its current debt deal. The channel now has greater financial flexibility to pursue this model, which could help the channel recover lost revenue. Revenues at Biglari’s restaurants, which include Western Sizzlin, fell 43% to $ 272 million in the first nine months of 2020.

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