KBRA Comments on TGI Fridays Chapter 11 Bankruptcy Filing

TGI Fridays Inc. (TGIF, or the Company), who was the manager of and operates company-owned restaurants for TGIF Funding LLC Series 2017-1, a whole business securitization (WBS), filed for bankruptcy protection on November 2, 2024. The filing affects 39 company-operated stores of the system’s more than 500 total locations (as reported at the end of Q3 2024), most of which are franchised. However, a number of closings have occurred since that date. The subject securitization is the first instance where a manager was terminated and subsequently filed for bankruptcy since the GFC.

Prior to the bankruptcy filing, on September 3, 2024, the control party for the WBS had declared a manager termination event and terminated TGIF as manager of the WBS. This was due to the failure to furnish a report of the independent auditors or back-up manager summarizing the findings of certain agreed-upon procedures within a certain time period. Following the manager termination event, the transaction remained in rapid amortization and the back-up manager, FTI Consulting, Inc. (FTI), became the successor manager. The transaction had been in rapid amortization since Q2 2020 following the breach of a system-wide sales (SWS)-related trigger. While TGIF had been terminated as manager, the Company is still in charge of running company-operated locations.

Until a successor manager has been appointed, FTI (as the back-up manager) has undertaken various management responsibilities, such as exercising inspection and audit rights against the securitization entities. FTI is a business consultancy firm founded in 1982 and specializes in corporate finance and restructuring and various types of consulting work. FTI is the back-up manager on most post-GFC WBS transactions. This is the first instance of FTI assuming the management of a WBS as successor manager following a manager termination event.

TGIF Funding LLC Series 2017-1 is collateralized by TGIF’s license agreements and existing and future franchise agreements, company-operated restaurant royalties, intellectual property and related revenues. The $375 million Class A-2 Note is the only class outstanding, has a note factor of approximately 36.7%, and is rated ‘B (sf)’. The securitization’s Class A-1 Note was paid off in full on May 2, 2022. As of Q3 2024, the DSCR for the transaction was 1.06x.

According to the transaction documents, because the WBS is in rapid amortization, any funds received by the trust from the TGIF system, after senior fees and expenses, are used toward the debt service of the rated Class A-2 Note. Only once the Class A-2 Note is paid down are funds available to TGIF. According to the most recent servicer report, which was the first report representing operations under the successor manager, the Class A-2 Note has continued to receive timely payment of interest without drawing on funds from the reserve account.

KBRA will continue to monitor developments in the transaction, including any performance trends and transition plans, as they occur.

About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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