FAT Brands Inc.: Chapter 11 Filing and Cash Collateral Dispute

FAT Brands Inc., a multi-brand restaurant franchisor, filed Chapter 11 on January 26, 2026 in the U.S. Bankruptcy Court for the Southern District of Texas. The company operates 18 brands with more than 2,200 locations, and the filing includes Twin Hospitality Group, the spinoff that owns Twin Peaks and Smokey Bones.

Bankruptcy filings describe a liquidity squeeze tied to the securitization structure, defaults and rapid amortization events, and litigation costs that drained cash, leaving about $2.1 million in unrestricted cash as of January 23, 2026. The debtors did not enter with DIP financing and instead sought interim authority to use cash collateral and keep cash management systems intact while they pursue mediation and a broader financing process. A noteholder group objected to the cash collateral and cash management requests and asked for appointment of a chapter 11 trustee, setting up early contested issues.

Restructuring

Liquidity at filing. The debtors entered Chapter 11 without DIP financing and requested interim authority to use cash collateral while they pursue mediation and an expedited financing process. Filings also disclose that unrestricted cash on hand was limited, so immediate liquidity depended on cash collateral access and continuation of existing cash management arrangements.

Cash collateral terms. The interim request proposes replacement liens and superpriority claims as adequate protection, along with a short-term budget and reporting requirements.

The interim budget and variance framework is intended to give creditors visibility into weekly cash performance, with reporting beginning in the third full week post-petition and variance thresholds tied to projected disbursements and receipts.

Cash management and banking. The debtors asked to keep their existing cash management system, covering 262 accounts at 21 banks, to avoid disrupting day-to-day operations. The motion seeks authority to pay bank fees of about $7,000 prepetition and roughly $50,000 per month postpetition, and to continue the credit card program with roughly $240,000 in prepetition obligations and an aggregate credit limit of about $478,000.

Account scale and operational drag. The cash management motion emphasizes that the debtors’ system is highly distributed across operating entities, with hundreds of accounts used to collect franchise royalties, manage company‑owned restaurant cash flows, and process payments tied to gift cards, loyalty programs, and delivery services. The debtors asked for authority to open and close accounts under U.S. Trustee guidelines so they can consolidate banking relationships where possible without interrupting payroll, vendor payments, or merchant processing. The filings also note that prepetition check and ACH activity continued in the ordinary course, making a forced account migration risky for day‑to‑day operations across a franchised system with thousands of locations. cash management motion

First-day operational continuity. The initial motion package is geared toward keeping the franchise system operating, with requests to pay wages and benefits, honor customer and franchisee programs, maintain trade relationships, and preserve insurance and utility service. The debtors also obtained early orders for joint administration and for retention of a claims agent to handle notices and the claims register.

Employee obligations. The first-day filings seek authority to pay employee wages, benefits, and related obligations to stabilize staffing. The workforce includes roughly 7,500 direct employees, with more than 5,600 at Twin Peaks and Smokey Bones and about 700 salaried roles. The wage and benefit motion also references statutory caps and limits on insider obligations.

Interim relief also seeks authority to honor prepetition checks and payroll and to reimburse tips before the first-day hearing (approximately $400,000 in Twin Peaks checks, $80,000 in Smokey Bones payroll, and about $150,000 per day in tip reimbursements).

These amounts are presented as estimates for wage, benefit, and tax obligations. The motions seek authority to pay them to maintain staffing and avoid disruptions across company-owned and franchised operations.

Customer and franchisee programs. The debtors also asked to keep customer and franchisee programs in place, including gift cards, rebates, delivery obligations, and loyalty programs.

Gift cards and franchisee rebates represent the largest portions of the estimated customer- and franchisee-facing obligations. The motions seek authority to honor those programs during the early weeks of the case.

Critical vendors and utilities. The first-day filings propose interim and final caps for critical vendor and 503(b)(9) payments, and a utilities assurance deposit of roughly $700,000, described as about half of one-month average utilities. The proposed process provides a 20-day objection window and dispute procedures for utilities that challenge the adequacy of the deposit.

The critical vendor and 503(b)(9) requests create a two-stage framework, with modest interim caps during the early weeks of the case and larger final caps that would require further court approval. The utilities deposit framework is designed to keep service uninterrupted while the debtors negotiate adequate assurance with utility providers. Insurance and taxes. The insurance motion seeks authority to maintain existing programs and pay premium financing obligations, which filings estimate at about $870,000 per month, alongside an outstanding $5 million letter of credit and total current premiums of roughly $14.3 million. The tax motion seeks authority to pay taxes and fees in the ordinary course, including approximately $550,000 in administrator fees and past-due tax claims asserted around $5.0 million, to avoid disruptions in licenses, permits, and ongoing operations.

Contested matters. The noteholder group objected to the cash collateral and cash management motions, asserting inadequate protection and improper collateral use, and asked the court to deny the requests. The same group moved to appoint a chapter 11 trustee, alleging conflicts and governance failures; those allegations are contested and remain pending.

Case administration and advisors. The debtors identified Latham & Watkins as counsel, GLC Advisors as investment banker, and Huron Advisors as financial advisor, with John C. DiDonato serving as chief restructuring officer. Omni Agent Solutions was retained as claims and noticing agent.

The claims agent retention order authorizes Omni to maintain the official claims register, receive proofs of claim, provide electronic claim filing, and distribute notices to creditors and parties in interest. Those administrative functions are standard early in large Chapter 11 cases.

Company Background and Brand Portfolio

FAT Brands operates and franchises 18 restaurant brands with about 2,200 locations, including Round Table Pizza, Fatburger, Marble Slab Creamery, Johnny Rockets, Fazoli's, Twin Peaks, Smokey Bones, Great American Cookies, and Hot Dog on a Stick. The first-day declaration describes a mix of franchise royalties and company-owned restaurant operations, with 2025 revenue of about $86.3 million in royalties, $5.7 million in franchise fees, and roughly $389.4 million from company-owned restaurants.

The revenue mix reflects both franchised royalty streams and company-owned restaurant sales. Whole business securitizations typically use royalty streams as collateral for long-term bonds, as described in industry explanations of whole business securitization.

Filings also quantify the workforce mix: about 7,500 direct employees, more than 5,600 of them at Twin Peaks and Smokey Bones, and roughly 700 salaried roles, alongside more than 45,000 franchisee employees across the system. The filings describe locations as open or under construction and emphasize the reliance on franchisee health and royalty collections across the brand portfolio.

Twin Peaks is one of the largest brands in the system and operates as a separate public company. Coverage around the spinoff noted Twin Peaks ranked as the 30th-largest chain by sales and reported average unit volumes of about $5.3 million, metrics that helped position the spinoff as a value-unlocking transaction even as the parent’s debt load remained concentrated in securitization trusts.

The company also operates a manufacturing facility in Atlanta that produces cookie dough and pretzel mix, generating about $39.4 million in 2025 and running at roughly 40% capacity. A Twin Peaks brewery in Irving, Texas produces about 12,000 kegs annually and is licensed for 20,000 kegs.

Those operating assets show that the business includes manufacturing and brewing operations alongside restaurants and franchise royalties. The filings describe them as part of the operating footprint during the case.

FAT Brands entered public markets in 2017. The company completed its 2017 IPO in October 2017, raising $24 million in a Regulation A+ offering, a structure the company said was intended to fund growth and acquisitions.

Acquisition Strategy and Twin Peaks Spinoff

FAT Brands used acquisitions as a primary growth strategy, funded largely through whole business securitizations and other debt. Court filings describe a roll-up that added brands such as Johnny Rockets, Global Franchise Group, Twin Peaks, Fazoli's, and Smokey Bones between 2020 and 2023. first day declaration

Industry reporting pegged those deals at roughly $25 million for Johnny Rockets, $442.5 million for Global Franchise Group, $300 million for Twin Peaks, $130 million for Fazoli’s, and $30 million for Smokey Bones. The acquisition pace helped expand the brand portfolio but also layered additional securitization debt on the royalty streams that underpin the financing structure.

Management later said the securitization debt was not guaranteed by the parent and that negotiations with creditors had extended for 18 to 24 months without a comprehensive solution, underscoring how the acquisition-driven capital structure complicated out-of-court options.

Twin Peaks was spun off and listed on Nasdaq in late January 2025, with FAT Brands retaining a majority stake and distributing a 5% special dividend to stockholders. The spinoff was positioned as a debt-reduction lever in company disclosures.

Twin Hospitality later outlined a Smokey Bones turnaround strategy that identified 19 conversions into Twin Peaks lodges and 15 closures of underperforming locations, with ten closures already completed by early fall 2025. Those moves show how the portfolio continued to shift even as the parent’s securitization-driven liquidity pressures intensified.

Securitization Debt Stack and the Liquidity Squeeze

The first-day declaration puts funded debt at roughly $1.45 billion, concentrated in five securitization trusts that hold the bulk of the royalty and brand-level obligations.

Whole business securitizations typically channel franchise royalties into lockbox and collateral accounts that pay debt service before excess cash reaches the operating company. Industry explanations note that these structures rely on predictable royalty streams and covenant triggers that can trap cash or accelerate amortization when performance weakens. That context helps explain why the debtors’ early filings focus so heavily on interim cash collateral access and a budgeted spending framework while they seek a broader resolution. whole business securitization

Restricted cash and liquidity constraints. The first‑day declaration distinguishes between unrestricted cash and restricted cash held in securitization trust accounts, a split that limits how much liquidity the parent can deploy without noteholder consent. The cash collateral motion explains that the debtors need interim access to proceeds that would otherwise be swept into collateral accounts, and it proposes replacement liens, superpriority claims, and a tight variance‑testing regime as adequate protection. The budget framework starts weekly reporting in the third full week post‑petition, uses a rolling variance test, and allows disbursements up to 115% of projected amounts with offsetting excess receipts. Those controls highlight why early case negotiations focus on cash governance and why short‑term liquidity depends on creditor agreement rather than a traditional DIP facility. first day declaration cash collateral motion

The debtors’ liquidity narrative also underscores why DIP financing is difficult in royalty-backed securitization cases: most cash is pledged to noteholders and sits in controlled accounts, leaving limited unencumbered cash to support a traditional priming DIP. In practice, that means the case can turn on negotiated consent for cash collateral use, interim protections for noteholders, and agreement on the path toward a larger financing or sale process. The emphasis on mediation and early cash governance reflects the operational reality of a franchisor whose cash flows are structurally boxed in by securitization covenants and account control.

The capital structure also includes equipment and refinancing loans and retained note promissory notes, plus unsecured claims. Filings list Twin Peaks equipment loans of about $4 million, a Riverside refinancing loan of about $18.75 million, a Waterfall loan of about $10 million, retained note promissory notes of about $8.4 million (GFG) and $6.2 million (Royalty), an Elevation promissory note of about $2 million, and estimated general unsecured claims around $104 million.

Filings also describe the Resid notes as secured by management fees, residual cash flows, and pledged Twin Hospitality shares, which ties the securitization structure directly to ownership interests in the spinoff. The equity structure includes preferred stock with an 8.25% dividend and a dual-class common stock structure, and FAT Brands maintains majority control of Twin Hospitality through Class B shares.

Filings describe a liquidity squeeze in which management fees of about $1.5 million per month were insufficient to cover operating costs around $8 million per month. Trustees and noteholders issued default notices and manager termination events in 2025 after failures to retain required collections, and the filings cite more than $72 million in penalty interest and amortization payments since the end of 2022 and about $85.5 million in litigation costs since 2021.

As of January 23, 2026, filings list about $2.1 million in unrestricted cash and roughly $19.9 million in restricted cash. The debtors said an out-of-court restructuring was impractical because required creditor consents could not be obtained, and they framed Chapter 11 as a path to a comprehensive deleveraging and restructuring of the securitization stack.

External reporting highlighted how the securitization structure complicated negotiations. One account noted that debt was split across five securitization trusts with roughly 25 investors, and another said a trustee demanded full repayment after missed payments, prompting calls for immediate payment. Restaurant Business Online also reported that UMB Bank demanded full repayment after missed quarterly bond payments in November 2025. Reporting also described a $1.26 billion tranche that was declared due and noted the company's position that the securitization debt was not guaranteed by the parent.

The multiple-trust structure means creditors hold claims against different pools of collateral and cash-flow waterfalls, making it difficult to reach a single consensual deal. Reporting highlighted that the trustee and noteholders were pursuing enforcement rights after missed payments, underscoring why the Chapter 11 filing became the venue for a court-supervised resolution rather than a private restructuring process. The early request for interim cash collateral access and the emphasis on mediation in the first-day papers are consistent with the need to align noteholder interests across five trust stacks. first day declaration

What is whole business securitization? The structure typically uses franchise royalties and other revenue streams as collateral for long-term bonds, often at lower rates and longer tenors than traditional corporate debt. Industry explanations emphasize that whole business securitizations are usually investment grade, can run for 30 years, and can become restrictive when performance deteriorates. Restaurant Business Online has described FAT Brands as the third major restaurant company to file under this structure, following TGI Fridays and Hooters, with commentary noting that the TGI Fridays case led to a loss of control of assets.

Additional context on the securitization market shows why the structure is widely used. One industry explainer said 99% of WBS ratings are investment grade and cited a 5.7 billion securitization used by Roark Capital to acquire Subway. Restaurant Business Online also noted that TGI Fridays was the first restaurant chain to file with this structure and that Hooters followed, and another report said both companies later emerged with new owners.

Governance, Litigation, and Creditor Tensions

A bondholder lawsuit filed by 352 Capital, a Jefferies subsidiary, seeks Twin Peaks shares as collateral and alleges a $109 million claim. Reporting said the dispute centers on a pledge of Twin Peaks shares and a 2025 share conversion that moved holdings from Class A to Class B. Coverage also noted a 98% decline in Twin Peaks shares since the spinoff and that the bondholder seeks over $100 million in unpaid loans, interest, and fees.

The same reporting said FAT Brands owed about 1.4 billion in bonds across five subsidiaries and cited FB Resid Holdings with roughly 169 million in principal and interest. Those figures frame the scale of the collateral dispute relative to the broader securitization debt stack.

The company has also faced regulatory and governance litigation. Criminal charges brought by the U.S. Attorney's Office were later charges dismissed in July 2025. Separately, FAT Brands announced a proposed $10 million settlement of derivative lawsuits that included governance reforms, and the Delaware Chancery Court approved the settlement in December 2025. Another report said the company reached a tentative SEC settlement in late 2025, though terms were not disclosed.

The SEC’s civil case remains a separate track from the dismissed criminal charges. The agency SEC alleged that executives diverted company cash for personal expenses and that the conduct stripped roughly 40% of revenue during the period at issue. Those allegations were not adjudicated in the bankruptcy case, but they add context for creditor scrutiny and governance tensions that surfaced in early Chapter 11 pleadings.

Earlier coverage of the criminal case detailed a 47 million false-loan scheme and described charges that included tax-related counts, false statements, and wire fraud. That reporting said prosecutors alleged the funds were disguised as shareholder loans and later forgiven, with personal expenditures highlighted in the indictment. The DOJ's later motion to dismiss ended the criminal case, but Restaurant Dive reported the company said the investigation cost about 75 million.

The derivative settlement details also add context for governance changes. The company said the settlement included 10 million of insurer-funded cash, a transfer of 200,000 Twin Hospitality shares, and corporate governance changes, including a Related Party Transactions Committee with authority over transactions involving Andrew Wiederhorn. The Delaware Chancery Court approval in December 2025 formalized those terms and deferred fee decisions for later review.

Within the Chapter 11 case, the noteholder group's trustee motion and objection to cash collateral and cash management relief add to governance and control disputes at the start of the restructuring.

Industry Context and Operating Pressures

Industry data has pointed to broader headwinds in restaurant demand and cost inflation. Technomic reduced its sales forecast in 2024 due to weak traffic, and a Bank of America industry report cited rising labor and food costs and consumer sensitivity to price increases. The same report noted that restaurant prices were rising faster than grocery prices, underscoring the pressure on traffic and mix in value-oriented segments. These pressures have been most visible in casual dining and in franchised concepts that rely on royalty revenue and steady franchisee health.

Bank of America’s report also highlighted shifting consumer spending patterns tied to economic uncertainty and elevated menu prices, trends that can be particularly challenging for franchisors whose royalty streams depend on stable traffic and average check sizes. When traffic softens, franchisee margins compress, and the fixed-cost burden of interest expense and securitization amortization becomes harder to absorb.

Company-specific reporting also highlighted performance issues. Restaurant Business Online noted eight consecutive quarters of same-store sales declines and an operating loss of $41.5 million in the first nine months of 2025, with interest expense exceeding $100 million. The same reporting said Twin Hospitality lost about $26 million over that period and that the spinoff shares fell sharply after listing.

Share performance deterioration is reflected across multiple reports. Restaurant Business Online described Twin Peaks shares as down 95% since the spinoff, while separate litigation coverage cited a 98% decline, reinforcing the weak equity backdrop in the months leading up to the bankruptcy filing.

Additional reporting detailed operational stress points at the brand level, including Smokey Bones taking merchant cash advances with annualized rates exceeding 100%, a Hurricane Grill lawsuit over marketing fund management, and Round Table Pizza rebates that franchisees said were unpaid. Nation's Restaurant News also reported a Nasdaq delisting threat tied to the stock price falling below $1, adding pressure as the company navigated creditor negotiations.

That coverage framed the period as a convergence of legal and financial pressures, including mounting debt, regulatory scrutiny, and declining equity value. The delisting risk underscored the company's limited flexibility in public markets as it sought a restructuring path.

Key Dates and Near-Term Milestones

Several of the most significant prepetition events occurred within the prior 18 months, including the Twin Peaks spinoff, the DOJ dismissal of charges, and the Delaware Chancery Court approval of the derivative settlement. Those milestones provide additional context for the capital structure and governance issues that surfaced in the Chapter 11 case.

Near-term milestones focus on interim cash collateral authority, resolution of the noteholder objection, and any proposed DIP financing or mediation framework described in early filings. The court's initial hearings on cash collateral and cash management set the initial timeline for how quickly liquidity access will be resolved in the near term.

Frequently Asked Questions

Why did FAT Brands file for chapter 11? Bankruptcy filings describe a liquidity squeeze tied to the securitization structure, defaults and rapid amortization events, and litigation costs that reduced cash, leaving limited unrestricted cash at filing. Filings also cite penalty interest and amortization payments since 2022 and a limited cash balance on the petition date. Industry coverage listed multiple pressures that converged leading up to the filing.

When did FAT Brands file for bankruptcy, and where is the case pending? The company filed Chapter 11 on January 26, 2026 in the U.S. Bankruptcy Court for the Southern District of Texas.

How large is FAT Brands' funded debt and how is it structured? Funded debt was estimated at about 1.45 billion at filing, mostly in five securitization trusts, with additional equipment and refinancing loans and unsecured claims listed in the first-day declaration.

What is whole business securitization and why did it matter in this case? Whole business securitization uses revenue streams such as royalties as collateral for long-term bonds; industry explanations note the structure is typically investment grade and often carries long tenors, but defaults can trigger tighter controls and accelerated repayment demands.

What brands and locations are included in the portfolio? The company said it operates 18 brands with over 2,200 locations, including Round Table Pizza, Fatburger, Marble Slab Creamery, Johnny Rockets, Fazoli's, Twin Peaks, Smokey Bones, Great American Cookies, and Hot Dog on a Stick.

Why is Twin Hospitality Group part of the filing? FAT Brands' spinoff, Twin Hospitality Group, which owns Twin Peaks and Smokey Bones, also filed Chapter 11. The spinoff listed on Nasdaq under a TWNP listing, and FAT Brands retained a majority stake after the transaction.

Is FAT Brands operating normally during the chapter 11 process? The company said its brands are expected to continue normal operations during the Chapter 11 process.

Did FAT Brands obtain DIP financing at filing? No DIP financing was in place at filing; the debtors sought interim authority to use cash collateral while pursuing mediation and a broader financing process.

What is the status of the noteholder group's objections and trustee request? The noteholder group filed an omnibus objection to cash collateral and cash management relief and also moved to appoint a chapter 11 trustee; both matters remain pending in early case filings.

Who is the claims agent for FAT Brands? Omni Agent Solutions serves as the claims and noticing agent. The firm maintains the official claims register and distributes case notifications to creditors and parties in interest.

Read more restructuring updates on the ElevenFlo blog.