Bankrupt fast-food chain Krystal is selling itself for approximately $48 million to an affiliate of its senior lender Fortress Investment Group.
A federal bankruptcy court approved the agreement on Wednesday.
The deal involves a $27 million credit bid and the assumption of liabilities up to $21.5 million from Fortress affiliate DB KRST Investors LLC.
Krystal, founded in 1932 on a street corner in Chattanooga, Tennessee, filed for bankruptcy in January. The company said in the filing that it closed 44 locations in the past year. The brand oversees approximately 300 units in the Southeast including Mississippi, Kentucky, South Carolina, Arkansas, Alabama, Florida, Georgia, Louisiana, and Tennessee.
At the time, the company said it “experienced strong industry-specific headwinds due to a combination of shifting consumer tastes and preferences, growth in labor and commodity costs, increased competition, and unfavorable lease terms.” It also cited increased competition due to the rise in online delivery platforms and difficulty finding and retaining qualified employees.
In October, Krystal announced plans to refranchise about 100 to 150 company-run restaurants to multi-unit operators as part of a fleet revitalization. A month later, Krystal hired Tim Ward as president and COO, a newly created position, and Bruce Vermilyea as CFO. CEO Paul Macaluso, who joined from McAlister’s Deli in April 2018, left the company. He’s now helming Another Broken Egg Café.
The brand’s January filing came 23 years after it filed bankruptcy in 1997 due to millions of dollars of employee claims for unpaid overtime. At the time, Port Royal Holdings acquired the chain for $145 million. That firm sold Krystal to Argonne Capital in 2012.
The company closed its dining rooms and limited operations due to the pandemic, but continued to serve customers via drive-thru and delivery. Lawyers said during a hearing Wednesday that revenue fell sharply and the company made cuts in workforce and expenses.
According to the Wall Street Journal, there were more than 10 parties interested in purchasing Krystal prior to the COVID-19 pandemic. However, post-crisis, the brand faced a “broken sale process and complete liquidation.”
Krystal received another offer from private equity firm Nashville Capital Group for a purchase price of $1 million and the assumption of more than $20 million in liabilities. But Krystal decided to accept Fortress’s deal, which was more than double what Nashville Capital offered.
One of Fortress’s lawyers said the firm plans to elevate Krystal through marketing, menu improvements, refranchising, and capital investments, the Journal reported.
Krystal earned $400 million in systemwide sales in 2019, down from $405 million in 2018, according to FoodServiceResults.
Fortress has also been involved in the possible purchase of CraftWorks Holdings, the parent of Logan’s Roadhouse and Old Chicago. The Journal wrote last week that CraftWorks is willing to sell itself in the form of a $93 million credit bid to Fortress, which is $45 million less than Fortress’s original $138 million offer.
Effective immediately, Thomas Stager will take over operations as Krystal president. He replaces former president and COO Tim Ward, who along with former CFO Bruce Vermilyea, are no longer with the company.