Franchise Group: $1.5B Debt-for-Equity Plan and Two-Step Emergence

Franchise Group, Inc. entered chapter 11 in Delaware on November 3, 2024 carrying about $1.985 billion of funded debt and a restructuring support agreement already signed by lenders holding roughly 80% of its first-lien term loan. The filing under lead case number 24-12480 in the U.S. Bankruptcy Court for the District of Delaware put a multi-brand retail and franchising platform — The Vitamin Shoppe, Pet Supplies Plus, American Freight, and Buddy's Home Furnishings — into a senior-lender-led process designed to convert the first-lien debt into reorganized equity.

What followed was less a clean prepack than a contested freefall-to-equitization case. The debtors lost their proposed co-counsel to a disqualification fight, the first- and second-lien agents litigated their intercreditor agreement in an adversary proceeding, the creditors' committee sought standing to attack the lenders' liens, and the estate sold The Vitamin Shoppe while winding down American Freight. The reorganization ultimately split into a two-step emergence: the non-TopCo debtors emerged on June 6, 2025, and the TopCo plan for Freedom VCM Holdings, LLC went effective on July 3, 2025, in a plan the debtors said cut about $1.5 billion of debt. Junior creditors were projected to recover little to nothing outside of litigation-trust outcomes.

Debtor(s)	Franchise Group, Inc. (jointly administered with affiliated debtors)
Court	U.S. Bankruptcy Court, District of Delaware
Case Number	24-12480
Petition Date	November 3, 2024
Judge	Hon. Laurie Selber Silverstein
DIP Facility	$750 million ($250 million new-money delayed-draw term loans plus a $500 million roll-up of prepetition first-lien debt)
Confirmation	Plan largely confirmed late May 2025
Effective Dates	June 6, 2025 (non-TopCo debtors); July 3, 2025 (TopCo / Freedom VCM Holdings)

Open the public case profile for docket context, hearings, advisors, and plan updates.

Multi-Brand Retail Platform and the Kahn-Prophecy Overhang

At filing, Franchise Group operated as a privately held holding platform for several retail and franchise businesses. The First Day Declaration of David Orlofsky describes a portfolio that included The Vitamin Shoppe, with about 680 company-operated stores and 20 franchised locations; Pet Supplies Plus and Wag N' Wash, with roughly 240 company-operated and 550 franchised locations; American Freight, with 357 stores; and Buddy's Home Furnishings, with 34 company-operated stores and more than 300 franchised locations.

The declaration attributes the filing to persistent liquidity pressure, macroeconomic headwinds in the durable-goods sector, and a debt load created or worsened by earlier transactions — particularly the Badcock home-furnishings business and the company's 2023 take-private transaction. Those pressures, the declaration states, made it increasingly difficult to deleverage and to reduce the cash-flow burden of high debt levels. Macroeconomic strain on demand for durable goods continued to weigh on the American Freight business in particular, which was closing all of its locations as the case progressed.

A second, case-defining factor was the overhang from allegations involving former chief executive Brian Kahn and Prophecy Asset Management, which surfaced in late 2023. According to the First Day Declaration, an internal investigation concluded that the allegations did not implicate other company personnel or directors, but the controversy still impaired the debtors' ability to execute divestitures and other transactions outside of chapter 11. The Kahn matter proceeded on its own track outside the bankruptcy: the SEC sued Kahn in September 2025 over the collapse of a $350 million hedge fund, and Kahn later pleaded guilty to defrauding hedge-fund investors in December 2025. B. Riley Financial, Inc., which co-sponsored the 2023 take-private that contributed to the debtors' debt load, reported the total loss of its Franchise Group investment following the bankruptcy filing. Shareholders later filed a derivative action against B. Riley's directors alleging that leadership's decision to pursue the take-private transaction constituted a breach of fiduciary duty.

The debtors did not enter chapter 11 without a deal. They filed with a restructuring support agreement signed on November 1, 2024 by lenders holding about 80% of the outstanding first-lien term loan principal — the constituency that would ultimately take control of the reorganized enterprise through an equitization of its debt.

Prepetition Capital Structure and the Freedom Silo

The capital structure was concentrated in secured debt. As of the petition date, the debtors reported about $1.985 billion of funded debt across four facilities: an asset-based lending facility of about $248.7 million, a first lien term loan facility of about $1.097 billion, a second lien term loan facility of about $125 million, and a HoldCo term loan facility of about $514.7 million.

The declaration also described an entity-separateness feature that shaped the plan architecture. The Freedom entities sat outside the credit circle for the ABL, first-lien, and second-lien facilities, and the debtors confirmed separate plans for the operating debtors and for the Freedom VCM TopCo.

The creditors' committee would later put a precise number on the senior debt for purposes of its lien challenge. In its standing motion, the committee noted that the debtors had stipulated to at least about $1,131.8 million of prepetition first-lien secured obligations under the Final DIP Order — a stipulation the committee argued blocked the estates from pursuing claims against the lenders without court-granted standing.

$750 Million DIP Facility and the Milestone Calendar

The debtors financed the case with a $750 million debtor-in-possession facility composed of $250 million in new-money delayed-draw term loans plus a $500 million roll-up of prepetition first-lien debt. The court entered an interim DIP order on November 7, 2024, with a final order following later in the case.

The DIP motion proposed new-money loans at Adjusted Term SOFR (subject to a 1.0% floor) plus 10.00%, or ABR plus 9.00%, and roll-up loans at Adjusted Term SOFR plus 4.75%, or ABR plus 3.75%. The fee stack included a 2.5% commitment premium on new-money commitments, a 2.5% exit premium on all DIP loans, a 0.2% fronting fee on new-money term loans, and a 10% DIP backstop premium on the new-money commitments. The DIP package layered adequate protection across the ABL, first-lien, and junior secured constituencies through superpriority claims, replacement liens, professional-fee protection, and a dedicated adequate-protection account structure.

DIP maturity was tied to an aggressive set of milestones: 180 days after closing absent extensions, but earlier on failure to obtain interim or final DIP orders, plan effectiveness, dismissal or conversion, certain sale closings, RSA termination, or acceleration. The same motion set the case calendar, requiring a plan, disclosure statement, and solicitation materials within three days of the petition date, a bidding procedures order within 28 days, a qualified bid deadline within 80 days, an auction within 85 days if more than one sufficient bid emerged, a sale order within 87 or 90 days, a confirmation order within 90 days, and an effective date by the earlier of 10 days after entry of the confirmation or sale order or 120 days after the petition date.

Bidding Procedures, the Vitamin Shoppe Sale, and American Freight's Wind-Down

On December 16, 2024, the court entered revised bidding procedures governing a sale of all or substantially all assets. The order set February 3, 2025 at 5:00 p.m. Eastern as the general bid deadline, scheduled a February 7, 2025 auction, and set a February 13, 2025 sale hearing — but only required the auction if the debtors received at least one "Sufficient Bid" at least 48 hours beforehand. The procedures preserved expansive credit-bid rights, allowing senior secured lenders to combine, supplement, or replace credit bids with cash bids before or during the auction, subject to the final DIP order and section 363(k). The dual-track structure put the lenders in position to take the business through either a sale or a plan. In April 2025, the debtors and their lenders clashed over control of the case.

The most significant standalone sale was The Vitamin Shoppe. In April 2025, the debtors sought approval to sell the Vitamin Shoppe business to TVS Buyer, LLC for a base cash purchase price of $193.5 million, subject to post-closing adjustments tied to working capital and assumed indebtedness. The sale motion describes the transferred assets broadly as the rights, property, and business assets used in or related to the Vitamin Shoppe business, excluding carved-out excluded assets, with the buyer also assuming specified liabilities. The debtors justified the deal as value-maximizing on the basis that the chain was not meeting profitability targets and that a sale would let management focus on the remaining businesses while minimizing customer disruption through transition services. Related sale papers identify the equity sponsors behind the buyer as Kingswood Capital Management and Performance Investment Partners, in a transaction trade coverage valued at nearly $195 million.

American Freight moved in the opposite direction. Rather than continue as a going concern, the furniture and appliance chain entered a store-closing and liquidation track, with the debtors' plan distinguishing the non-liquidating businesses from the American Freight debtors pursuing store-closing sales. The wind-down reached the operating level quickly: American Freight laid off 19 senior executives as it closed its business, and the brand's intellectual property and remaining assets were later acquired by AF NewCo, Inc.

Willkie Farr's Disqualification and Kirkland's Entry

The most heavily litigated early dispute concerned the debtors' choice of counsel. After Willkie Farr & Gallagher LLP filed its retention application on December 19, 2024 to serve as co-counsel, the U.S. Trustee objected on January 13, 2025, arguing that the firm held a disqualifying conflict because of its prior and ongoing ties to former CEO Brian Kahn, B. Riley, and the Prophecy fund matters at the center of the debtors' distress. The objection challenged the firm's disinterestedness under section 327(a).

The U.S. Trustee was not alone. The Ad Hoc Group of Freedom Lenders and a settlement-related liquidating trust filed their own objections pressing the same disinterestedness and duty-of-loyalty themes, and the U.S. Trustee supplemented its objection in early February 2025. The debtors and Willkie filed a joint reply contending there was no actual conflict and that a debtor's selection of counsel should be respected.

The firm did not survive the challenge. The bankruptcy court removed Willkie Farr from the case, and Willkie withdrew as counsel on February 13–14, 2025. Kirkland & Ellis LLP stepped in as replacement counsel, reflected in a wave of Kirkland pro hac vice admissions on February 14, 2025; the firm publicly confirmed its role advising Franchise Group on the chapter 11 cases. Even with counsel changing mid-stream, the debtors kept the restructuring moving, reaching a tentative deal on the plan voting process days after the removal.

Professional retentions and fee oversight. On January 15, 2025, the court appointed Direct Fee Review LLC as fee examiner, making the examiner an officer of the court charged with reviewing estate-retained professional fee applications for reasonableness, necessity, and compliance with the Bankruptcy Code, the rules, and interim compensation procedures. The order contemplated detailed time and expense records, an initial report within 30 days of an application, a negotiated resolution period, and a final report before the court retained ultimate authority to allow or disallow fees. On the advisory side, Lazard acted as financial advisor to the ad hoc group of first-lien lenders that drove the equitization.

First-Lien/Second-Lien Intercreditor Litigation

The capital structure's seniority dispute moved from negotiation to litigation. On January 28, 2025, the Official Committee of Unsecured Creditors moved for derivative standing to prosecute challenge claims on behalf of the estates, arguing that the debtors were barred from pursuing those claims themselves by stipulations in the Final DIP Order. The committee targeted the Prepetition Second Lien Secured Parties and Second Lien Sidecar Secured Parties, seeking to avoid allegedly unperfected liens on unencumbered assets and to preserve a potential fraudulent-transfer claim tied to a Fifth Amendment to the Second Lien Credit Agreement dated August 19, 2024.

The intercreditor fight then escalated between the senior lenders themselves. The second lien agent filed a superpriority administrative claim motion on February 13, 2025, seeking an administrative expense claim for alleged diminution in the value of the second lien collateral. On March 23, 2025, the first lien agent responded by commencing an adversary proceeding to block that claim. In Adversary Proceeding No. 25-50441, Wilmington Trust, National Association, as First Lien Administrative Agent and Collateral Agent, sued Alter Domus (US) LLC, as Second Lien Administrative Agent and Collateral Agent, alleging that pursuit of the administrative claim violated the Amended and Restated First Lien/Second Lien Intercreditor Agreement dated November 22, 2021. The complaint sought declaratory and injunctive relief and specific performance, contending that the second lien parties had agreed not to receive collateral proceeds and to turn over any recoveries until the first lien obligations were paid in full in cash.

The dispute drew restructuring-bar attention as a lender-versus-lender test of intercreditor waterfall mechanics, with practitioners noting the case as one of a rising set of intercreditor suits. The committee's posture was reported as creditors moving to sue over a pre-bankruptcy action.

Two-Step Plan Confirmation and OpCo/TopCo Emergence

The plan preserved entity separateness rather than substantively consolidating the debtors. By February 20, 2025, the debtors had filed the sixth amended joint chapter 11 plan, which maintained separate treatment architecture for the operating company debtors, the HoldCo debtors, and TopCo, and classified secured claims separately from OpCo general unsecured claims, Freedom HoldCo general unsecured claims, HoldCo receivables unsecured claims, and TopCo general unsecured claims. The same plan distinguished the non-liquidating debtors from the American Freight debtors pursuing store-closing sales and built the case's recovery vehicles around an OpCo Debtor Litigation Trust and a Freedom HoldCo Debtor Litigation Trust as part of the committee settlement. The OpCo Debtor Litigation Trust escrow was defined as $21 million minus committee professional fees and expenses incurred from the petition date through the effective date.

The first lien position equitized into the reorganized equity, while the junior layers were left dependent on litigation-trust outcomes. The Fourth Amended Plan disclosure statement projected an estimated 0% recovery for the Prepetition Second Lien Loan Claims (Class 5), for each of the OpCo General Unsecured Claims classes (Classes 6-A through 6-E), for the Prepetition HoldCo Loan Claims (Class 7), and for the Freedom HoldCo, HoldCo Receivables, and TopCo general unsecured classes (Classes 8-A, 8-B, and 8-C). Several junior recoveries were expressly made subject to the OpCo and Freedom HoldCo Litigation Trustees' pursuit of estate claims, and Class 5 was offered New Warrants of undetermined value contingent on the class voting to accept. Former CEO Brian Kahn, whose equity and claims the plan sought to cut off, objected to the plan in May 2025.

The court largely confirmed the plan in late May 2025, with the debtors saying the restructuring cut about $1.5 billion of debt. Emergence then split into two steps. The notice of effective date states that the non-TopCo confirmation debtors emerged on June 6, 2025, and a separate TopCo confirmation order confirmed the ninth amended plan for Freedom VCM Holdings, LLC, whose effective date occurred on July 3, 2025. The company announced the completed restructuring and trade press reported that Franchise Group had exited chapter 11 with Pet Supplies Plus and Buddy's Home Furnishings as core continuing businesses, reorganized under a new entity called Fusion Parent, LLC, while S&P withdrew its issuer rating following emergence.

Key Timeline

Date	Event
November 1, 2024	Restructuring support agreement signed by holders of about 80% of first-lien term loan
November 3, 2024	Chapter 11 petitions filed in Delaware (Case No. 24-12480)
November 7, 2024	Interim DIP order entered
December 16, 2024	Bidding procedures order entered
December 19, 2024	Willkie Farr files application to serve as co-counsel
January 13, 2025	U.S. Trustee objects to Willkie retention
January 15, 2025	Direct Fee Review LLC appointed fee examiner
January 28, 2025	Creditors' committee moves for derivative standing
February 13–14, 2025	Willkie removed and withdraws; Kirkland & Ellis enters
February 20, 2025	Sixth amended plan and disclosure statement filed
March 23, 2025	First lien agent files intercreditor adversary (Adv. No. 25-50441)
April 16, 2025	Vitamin Shoppe sale motion filed
Late May 2025	Plan largely confirmed
June 6, 2025	Effective date for non-TopCo debtors
July 3, 2025	TopCo effective date (Freedom VCM Holdings)

Frequently Asked Questions

What did Franchise Group's chapter 11 plan do to its debt?

The debtors said the confirmed plan cut about $1.5 billion of debt, primarily by equitizing the first-lien term loan into reorganized equity. Junior classes, including the second lien, HoldCo, and general unsecured claims, were projected to recover little to nothing outside of litigation-trust outcomes.

Who bought The Vitamin Shoppe?

The Vitamin Shoppe business was sold to TVS Buyer, LLC for a base cash purchase price of $193.5 million. Related sale papers identify Kingswood Capital Management and Performance Investment Partners as the equity sponsors behind the buyer.

Why was Willkie Farr removed from the case?

The U.S. Trustee, the Ad Hoc Group of Freedom Lenders, and a settlement-related liquidating trust objected to Willkie Farr's retention, arguing the firm had a disqualifying conflict because of its ties to former CEO Brian Kahn, B. Riley, and the Prophecy fund matters. The court removed the firm, and Kirkland & Ellis LLP replaced it in February 2025.

When did Franchise Group emerge from bankruptcy?

Emergence occurred in two steps. The non-TopCo confirmation debtors emerged on June 6, 2025, and the TopCo plan for Freedom VCM Holdings, LLC went effective on July 3, 2025.

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