By The Indianapolis Business Journal
INDIANAPOLIS — 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.
The company completed its repurchase from lenders on Feb. 19, according to 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.
In January, the Indianapolis Business Journal reported 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.
