Vitamin Shoppe Owner Franchise Group Files for Chapter 11 Protection

Holding company Franchise Group Inc., also known as FRG, is filing for Chapter 11 bankruptcy protection as significant losses and internal instability pushed the company beyond its limits. While many people might not be familiar with FRG, it is the company behind many famous brands, such as The Vitamin Shoppe, Pet Supplies Plus, and Buddy’s Home Furnishings.

According to court documents filed in Delaware, FRG owes about $2 billion to creditors. Reportedly, the company is negotiating with lenders on a deal to exchange the debts for an equity stake in a new, restructured FRG.

In addition, a $250 million financing deal is supposedly also in the works with the lender group that holds the majority of FRG’s debt. The purported agreement could inject some needed funds and allow the struggling company to operate and retain commitments to employees, customers, vendors, and franchise owners.

FRG’s restructuring plan includes the closing of all American Freight stores starting Nov. 5. It’s still unclear what path the company will take regarding The Vitamin Shoppe, which has 700 retail stores and a popular online site.

Franchise Group Turmoil

A little over a year ago, FRG went private through a $2.8 billion buyout arranged by former CEO Brian Kahn. Investment firm B. Riley helped facilitate the deal.

Shortly thereafter, Kahn became embroiled in a criminal investigation related to alleged securities fraud that caused the failure of hedge fund Prophecy Asset Management. Meanwhile, FRG’s profitability was taking a hit as its brands were struggling and debt was piling up.

FRG successfully offloaded Sylvan Learning in February, yet the potential sell-off of other brands suffered due to the criminal case involving Kahn. According to B. Riley executives, it was a “confluence of events” that led to the bankruptcy of FRG.

“Unfortunately, the investment was devastated by the precipitous decline in consumer spending in the markets served by the FRG brands, and the fallout and uncertainty from the Prophecy scandal and the related federal investigation into Brian Kahn,” wrote Bryant Riley, B. Riley’s co-founder and chairman, per Forbes.