TGI Fridays loses control of most of its assets

TGI Fridays has lost control of management functions related to its franchise operations. | Photo: Shutterstock.

TGI Fridays has lost control of many of the company’s management functions after the trustee overseeing its 2017 securitization financing declared a seemingly rare “manager termination event,” two bond rating agencies said this week.

According to Kroll Bond Rating Agency, the trustee, Citibank, has terminated TGI Fridays as manager of its entire securitized business. The reserve manager, consulting firm FTI Consulting, will assume some management responsibilities until a permanent manager is named. Many of those roles appear to be related to the chain’s franchising and licensing operations.

FTI will oversee securitization, personnel decisions, collection of royalties, and certain advertising, marketing and administrative duties, among other responsibilities. Those responsibilities could also include “liquidating collateral if warranted,” Kroll said.

The agency said it was the first executive dismissal since the financial crisis involving a whole-business securitization, or WBS.

The issue concerns the form of financing TGI Fridays used in 2017. As part of a company-wide securitization, companies issue bonds backed by their future cash-generating assets, such as royalties paid by franchisees.

The financing is popular among restaurant franchises, including giants like Domino’s and Subway. Brand collector Fat Brands used WBS to orchestrate nearly $1 billion in acquisitions in late 2020 and 2021.

Under such agreements, bondholders can intervene if problems arise.

TGI Fridays has $375 million of remaining collateral from a 2017 WBS. Part of the debt was paid off this year after the chain sold permanent retail licensing rights to Kraft Heinz. The company also paid off other bonds in 2022, according to Kroll.

Rating agencies have downgraded the bonds several times over the years due to the challenges facing casual dining restaurant operators, particularly pressure on such chains from weak sales and low traffic at those restaurants.

Rating agency Standard & Poor’s (S&P) said “several factors” led to the termination, most notably an overpayment of $2 million in management fees from the securitization to TGI Fridays. The company has since repaid $228,000 of that overpayment, according to S&P.

According to S&P, the error was discovered only after TGI Fridays used the fees to settle outstanding debts to some of its suppliers.

The agency also said TGI Fridays has withheld a portion of its royalties from sublicensing agreements and deferred payment of a 4% royalty from its corporate affiliates.

TGI Fridays did not respond to a request for comment.

The news comes at a key time for the casual dining chain, which has struggled in recent years as customers opted for limited-service locations.

The chain’s U.S. sales fell 15% last year, according to data from sister company Restaurant Business Technomic. The decline was due to unit closures and weaker average unit volumes.

TGI Fridays has been struggling domestically for years. It has closed half of its U.S. restaurants over the past decade and ended last year with 269 restaurants. Many, but not all, of those closures came in 2020. The company began 2024 by closing 36 more locations.

The chain currently has 367 locations outside the U.S., but that number has also declined over the past decade.

TGI Fridays was in the market and earlier this year reached a deal with its largest global operator, UK-based Hostmore, for $220 million. However, that acquisition was delayed after TGI Fridays and Hostmore decided to change their plans and sell all of their corporate stores to franchisees. Both Hostmore and TGI Fridays have agreements to sell some of their stores for $40 million.

Hostmore also noted that both it and TGI Fridays are in talks with lenders to use the proceeds from the sale of corporate stores to pay down debt. But it also said it is considering other options if the deal falls through.

Members help us keep our journalism going. Become a Restaurant Business member today and unlock exclusive benefits, including unlimited access to all our content. Sign up here.

Jonathan Maze, Restaurant Business Editor, is a longtime industry journalist who covers restaurant finance, mergers and acquisitions, and the economy, with a focus on fast food restaurants.

See all articles by this author