B. Riley Chairman's Distress as FRG Files for Bankruptcy

B. Riley Financial Inc.'s Chairman, Bryant Riley, expressed personal distress as Franchise Group Inc. (FRG), a company in which B. Riley held a significant stake, filed for bankruptcy. FRG, the owner of brands like The Vitamin Shoppe and Pet Supplies Plus, sought Chapter 11 protection on November 3, 2024, listing assets and liabilities each between $1 billion and $10 billion (Source: Number 3).

The bankruptcy filing marks the culmination of months of losses and turmoil surrounding FRG's founder, Brian Kahn, and its major backer, B. Riley. Kahn, who led the company's debt-fueled buyout in 2023, stepped down amid a criminal investigation into his role in a securities fraud case tied to the collapse of defunct hedge fund Prophecy Asset Management (Source: Number 1 & 4). FRG's brands struggled to perform as projected, compounded by maturities on $2.6 billion in debt.

B. Riley's involvement in FRG's buyout and subsequent financial backing significantly contributed to the company's decline. In 2018, Kahn used acquisitions to create FRG, with B. Riley providing financial support. In 2023, B. Riley took a 31% stake in FRG and loaned $200 million to Kahn, using his FRG stake as collateral (Source: Number 1 & 4). The debt-fueled buyout, valued at $2.8 billion, placed substantial financial strain on FRG, ultimately leading to its bankruptcy.


B. Riley's restructuring negotiations with FRG played a significant role in the company's inability to avoid bankruptcy. The negotiations, which lasted for months, involved senior lenders like HPS Investment Partners and focused on providing amendments and covenant relief as plans came together (Source: Number 1 & 4). However, these negotiations ultimately failed to prevent FRG's financial struggles, compounded by maturities on $2.6 billion in debt and Kahn's departure amid a criminal investigation.

The bankruptcy filing has significant implications for B. Riley, which expects to record a non-cash impairment of approximately $120 million with respect to the Freedom VCM Investment and the Vintage Loan Receivable from Vintage Capital Management (Source: Number 2). B. Riley also anticipates that the Nomura line will be paid down to $125 million by the end of the month.


In conclusion, B. Riley's Chairman, Bryant Riley, feels "personally sick" as FRG files for bankruptcy, highlighting the significant financial and reputational impact of the company's decline on B. Riley. The debt-fueled buyout, maturities on FRG's debt, and Kahn's departure amid a criminal investigation ultimately led to FRG's bankruptcy. B. Riley's restructuring negotiations failed to prevent the company's financial struggles, leaving B. Riley with a substantial financial hit. Investors should closely monitor B. Riley's financial performance and future strategic decisions in light of this significant setback.