Indianapolis-based Steak n Shake has averted a potential bankruptcy filing by purchasing and retiring the remaining balance of a $220 million loan due next month, Bloomberg reported on Monday morning.
The company completed its repurchase from lenders on Feb. 19, according to Bloomberg’s sources, who asked not to be named discussing private transactions.
Steak n Shake and advisers including FTI Consulting Inc. and the law firm Latham & Watkins were preparing for a potential Chapter 11 filing earlier this month while the company negotiated with holders of the debt, Bloomberg previously reported. Those investors included Fortress Investment Group. Steak n Shake and its advisers declined to comment.
IBJ reported Jan. 15 that the struggling restaurant chain lacked the cash to pay off a $153 million loan that comes due March 19.
The loan originally was for $220 million, but Steak n Shake whittled down the balance over the years, in part by buying back debt at a discount.
Still, the amount the company owed was daunting given its shrinking scale. Steak n Shake had 489 restaurants in operation as of Sept. 30, down 20% from the number in operation when it took out the loan in 2014, and customer traffic at those remaining restaurants has plummeted during the pandemic.
Back then, Steak n Shake was riding high, with its deep discounting strategy fueling $154 million in operating profits over the prior four years.
But the magic soon vanished, as a host of stumbles—including service problems caused by high employee turnover—led to plunging customer counts. In response, hedge fund investor Sardar Biglari, who gained control of the chain in 2008, began shuttering money-losing restaurants and slashing costs.
Based on publicly available data on debt trades, the $153 million outstanding as of the end of the third quarter was trading at a 48% discount, leaving it with a fair market value of just $80 million, according to a Securities and Exchange Commission filing.