Steak ‘n Shake appears to have avoided bankruptcy, according to a report in Bloomberg. But it still could be headed to court.

Only now, the burger chain is going on the offensive.

Steak ‘n Shake is suing Fortress Investment Group in Indiana, accusing the company of misusing confidential business information in an attempt to assume control of Steak ‘n Shake’s assets. Per Bloomberg and filings, Fortress obtained financial information about Steak ‘n Shake in mid-2020 during negotiations for a possible real estate deal. Steak ‘n Shake said Fortress turned around and used the information to try and buy its loans, force it into bankruptcy, and acquire it through a credit bid.

The news came shortly after Bloomberg reported Steak ‘n Shake purchased and retired the remaining balance of its $220 million loan due in March. “People with knowledge of the payment” said Steak ‘n Shake completed its repurchase from lenders on February 19.

According to earlier reports, Steak ‘n Shake engaged advisers FTI Consulting Inc. and law firm Latham & Watkins to prepare for a potential Chapter 11 filing while the company negotiated with holders of the debt.

One of those investors was Fortress Investment Group.

Steak ‘n Shake was struggling to generate enough capital to update assets from full-service to counter-service. And it attempted to raise funds by selling owned real estate via auction when it put 15 venues up for sale in August.

According to Bloomberg, no sale took place. Parent company Biglari Holdings Inc. would not guarantee the loan in a November filing and admitted it would have trouble paying off or refinancing the debt. Steak ‘n Shake’s was allegedly exploring a possible financial restructuring as far back as January, when news surfaced in The Wall Street Journal.

The $220 million loan had been cut down to $153 million and was due March 19.

Returning to Monday’s lawsuit, Fortress and affiliates bought more than half of Steak ‘n Shake’s first-lien loan due in March 2021 after those real estate deal talks started. It was a position worth roughly $89 million at face value. Steak ‘n Shake said in the complaint Fortress threatened to use its majority position to drive the company into Chapter 11.

It said Fortress planned to use its rights as a majority holder of the loan to purchase, at discount, the real estate standing as the debt’s collateral. Properties included ones reviewed during 2020 negotiations, Bloomberg said.

As Steak ‘n Shake prepared for a potential bankruptcy filing, it tried to negotiate repayment with Fortress. According to filings, Steak ‘n Shake paid $102 million to take out the debt.

The company said Fortress’ scheme cost it “millions of dollars and countless hours of management attention at a critical time.”

Steak ‘n Shake added the company, “thought they were providing this information to a potential counterparty to a real estate transaction, not to a vulture investor.”

For months, it was buying up portions of the loan on the open market at a discount from other investors. As loan maturity approached, however, Fortress said it wouldn’t accept less than full value, per the lawsuit.

In Steak ‘n Shake’s view, the information it provided Fortress regarding the 15 properties for sale earlier enabled the firm to extrapolate the total value of its real estate and other details concerning the company’s value.

Steak ‘n Shake is seeking damages related to fending off Fortress’ alleged takeover attempt.

Fortress acquired CraftWorks out of bankruptcy in May with a $93 million credit bid and bankrupt fast-food chain Krystal for roughly $48 million before that.

Fast Food, Finance, Story, Steak 'n Shake