B. Riley-Backed Franchise Group Wins Brief Reprieve From Lenders

(Bloomberg) — Lenders to Franchise Group Inc., the troubled firm at the center of turmoil surrounding B. Riley Financial Inc., gave its managers a short reprieve to work out a plan for its roughly $1.5 billion debt load.
A group of first-lien debt holders agreed to waive some covenants in Franchise Group’s credit agreement while tightening other protections for lenders and requiring milestones that include the delivery of a business plan and restructuring proposal by around mid-September, according to people familiar with the matter. 
The amendment requires the creation of a special committee with two independent directors who can negotiate that restructuring, said the people, who weren’t authorized to publicly discuss the private negotiations. The goal is an out-of-court restructuring, said one of the people. 
The plan also allows for a securitization transaction involving the firm’s Pet Supplies Plus business, they said. Separately, second-lien and holding company lenders have agreed to defer cash interest on their debt until Oct. 30, the people said. 
Paul Hastings is advising the group of first-lien lenders to Franchise Group, also known as FRG, the people said. Franchise Group and representatives for Paul Hastings did not respond to requests for comment. B. Riley declined to comment.
B. Riley’s investment in the firm and its relationship to FRG founder Brian Kahn have led to massive writedowns and a widening investigation by US authorities, including the US Securities and Exchange Commission. Kahn, B. Riley and its co-founder Bryant Riley maintain they haven’t done anything wrong.
Los Angeles-based B. Riley helped arrange a $2.8 billion management-led buyout of FRG last year, taking a minority stake for itself. Some FRG shares were pledged as collateral to back loans that B. Riley obtained. 
Since then, FRG’s performance has weakened, and credit raters have cast doubt on its finances. S&P Global Ratings reduced its rating on FRG to CCC in late July and warned another cut might be coming, saying the firm’s capital structure looks unsustainable. 
The second-lien term loan was pegged even lower at CCC-, with S&P seeing potentially no recovery for those creditors if there’s a default. In part, S&P cited a soured deal by FRG with Conn’s Inc., a home furnishings chain that went bankrupt in July.
A roughly $765 million first-lien term loan for FRG has been trading around 54 cents on the dollar, according to data compiled by Bloomberg. 
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