Fat Brands Will Be Split Into Four Businesses After $1.5 Billion Bankruptcy

Fat Brands said it will break itself into four separate operations as part of a court-supervised restructuring after accumulating roughly $1.5 billion in obligations, a move that could redraw ownership of several restaurant chains and unsettle franchisees and investors alike.

Under the restructuring plan, executives propose separating the company’s holdings into discrete units that could be sold or recapitalized individually. Court documents outline an effort to maximize recovery for creditors by marketing portfolios of brands, licensing agreements and real estate to different buyers rather than selling the whole company intact. Insolvency professionals expect auctions or negotiated sales to begin within months if judges sign off on the timetable.

Franchise operators and managers reported immediate unease. “We don’t know who we’ll be dealing with next,” said a multiunit operator who asked not to be named. “Contracts could shift, and that affects local payrolls and supply chains.” Industry lawyers note that existing franchise agreements often transfer to new owners, but terms can be revisited, leaving franchisees to bargain over royalties, support and territory protections.

Creditors are also watching closely. Secured lenders generally get priority, while holders of unsecured claims may recover only a small fraction of what they’re owed. A restructuring specialist who reviewed the filings said dividing a company into separate saleable pieces can boost proceeds for secured parties, but often reduces recoveries for more junior creditors, sometimes to less than one-fourth of their claims.

Fat Brands grew rapidly through acquisitions in recent years, buying smaller chains to expand its footprint. That strategy loaded the balance sheet and, together with rising borrowing costs and tighter consumer spending, strained cash flow. Analysts say the split-up approach is a common next step when a large franchisor confronts an unsustainable debt burden and buyers show interest in specific brands rather than a conglomerate of labels.

If courts approve the plan, day-to-day operations may continue while sales move forward, keeping restaurants open for customers. Still, employees and suppliers should brace for changes in ownership and management. Observers expect the deals to reshape local markets, with private-equity firms and rival franchisors likely bidders for the most valuable pieces.