Want to save the planet? Or the animals? Or maybe you just like the taste of soy. Well be prepared to pay a premium. For example, here are 12-pieces of faux chicken nuggets from KFC for the low price of $13.99. Or you can opt for this impossible Whopper sandwich for $9.49. Or, instead, you could go normie and get 16 regular chicken nuggets from KFC for $10 or a regular Whopper for $8.19. We’ll let you run the math but, clearly, a plant-based diet comes at a premium.
A premium that a lot of people aren’t willing to pay. According to the Good Food Institute, U.S. retail plant-based food sales fell $8.24b in ‘22 to $8.07b in ‘23.
Why? Well, in the same report we have the results of this neat survey:
At least 30% of those surveyed attributed their willingness to try plant-based meat products to cost. Accordingly, only 15% of U.S. households bought plant-based meat in ‘23. And while plant-based meat companies would tell you that’s just more room to grow into, that’s a decrease from 19% in ‘22.
This isn’t a post-COVID environment anymore. And apparently there’s just not enough room in the wallet to spend more at the Whole Foods for meat-like substitutes. Even fast food chains are feeling the pain and taking plant-based meat items off their menus:
Ah yes, Carl’s Jr. and Del Taco. We wonder who the creative genius was who married those two to premium fake meat: there must be a ton of overlap between Carl’s Jr. customers and health/eco conscious vegetarians, 🙄. This is akin to an attempt by Red Bull to expand its TAM by releasing a caffeine free drink. Snoop Dogg releasing a song without a marijuana reference. Or Budweiser releasing an alcohol free beer. Oh wait:
Anyways, this brings us all to Beyond Meat Inc. ($BYND). Both plant-based meat products formerly sold at Carl’s Jr. and Del Taco were courtesy of Beyond Meat. We never thought fast food chains would be the bellwethers of the broader plant-based meat industry but here we are:
The company has seen sales decline since FY’22 and are currently guiding to a midpoint of $330mm in revenue for FY’24 (only a 3.9% YoY decline!). This is after BYND beat consensus revenue estimates for several quarters in a row, which has sent the stock on quite a rollercoaster:
Zooming out a bit, we can see how far the stock has fallen since its 2019 IPO:
The plant-based meat industry is rather saturated. Most notably, BYND competes with Impossible Foods Inc. for foodservice sales. You might’ve seen Impossible menu items at your local Bareburger, or Dos Toros, or Burger King. Even Fuku has Impossible chicken nuggets on the menu:
To make matters worse, several food industry titans like Cargill Inc., Tyson Foods Inc. ($TSN), and Hormel Foods Corp. ($HRL) have joined the fray, creating more competition on the retail side of the business.
On top of these adverse industry trends the company also has $1.15b in 0% interest convertible senior notes that were issued back in ‘21 at a strike of … $206/share LOL. The converts were last pricing at $17.25 according to FINRA.
The notes are due March 15, 2027, less than three years away, which, naturally, means …
LOL. “Too soon” is not a phrase uttered much in restructuring circles. Akin Gump Strauss Hauer & Feld LLP represents the bondholder group while the company has Latham & Watkins LLP gobbling up some fake, bad-tasting meat in conference rooms to demonstrate their bona fides.
Can you imagine trying to refinance this cash incinerating company at market interest rates? Goldman Sachs Group Inc. ($GS) apparently tried back in April:
Maybe talks are still ongoing, or maybe we can chalk this one up as one of the few times private credit actually said “no,” 🤷♀️.
BYND currently has $144.9mm in unrestricted cash and a $200mm ATM equity program with Goldman. Meanwhile the company incinerated $108mm and $320mm in operating cash flow for FY’23 and FY’22, respectively. Management is guiding towards an operating loss of ~$140mm and a midpoint capex of $17.5mm for FY’24. We’re getting there! Just a bit more and meat-free BYND will be cash-free.
💥New Chapter 11 Bankruptcy - BurgerFi International, Inc. ($BFI)💥
Speaking of purveyors of fake meat …
On September 11, 2024, Florida-based BurgerFi International Inc. ($BFI) and 114 affiliates (collectively, the “debtors”) filed chapter 11 cases in the District of Delaware (Judge Goldblatt). The debtors and their affiliates develop, operate and franchise BurgerFi and Anthony’s Coal Fired Pizza (“Anthony’s”) restaurants. BurgerFi provides a fast-casual, “better burger” experience while purportedly using all-natural, high-quality ingredients, while Anthony’s supposedly provides a premium-casual pizza dining experience using fresh, never frozen, high-quality ingredients.
Is it just us or has the better burger fad gotten out of hand? Don’t get us wrong we love variety, but how many different ways are there to assemble some ground beef, veggies, and cheese?
Not just Five Guys, buddy. There’s Shake Shack Inc. ($SHAK - up 39.8% YTD btw), Smashburger, Bareburger, and Wahlburger (yes, from Mark Wahlberg) — the choices are endless.
So we’re not surprised one of these has now hit rock bottom, and of course it’s the one that was a deSPAC, lol.
BFI currently sports 91 BurgerFi locations (76 franchised, 17 corporate-owned) and 51 Anthony’s locations (1 franchised and 50 corporate-owned). At the time of the deSPAC, BFI consisted of only the BurgerFi segment. After BFI listed on Nasdaq in ‘21 through a SPAC merger with Opes Acquisition Corp. (sponsor: Axis Capital Management), BFI went and acquired Anthony’s for $156.6mm:
“BFI acquired Anthony's in 2021 after it completed its de-SPAC transaction. As part of that merger, BFI became a borrower under the Senior Credit Facility, obligating itself to over $50 million in debt.”
Impeccable timing guys! Fast forward to ‘23 and macroeconomic factors caused the debtors’ sales to decline across both BurgerFi and Anthony’s. FY’23 revenues declined by $8.6mm and corporate-owned average sales per restaurant declined from $167k to $161k between FY’22 and FY’23.
Management made several efforts to fix operations … a key strategy was, well, “new jumbo chicken wings” …
… so, uh, good job guys. Seriously, what the f*ck is a Meatball Martini? Is it meatballs + martinis or is it a meatball flavored martini? Who’s the target audience here? Middle aged Italian moms? Color us stupefied.
And of course there’s also a Beyond Meat burger!
Absent a viable turnaround plan, cash declined from $11.9mm at the end of FY’22 to $7.6mm at the end of FY’23. As of the petition date, the debtors only had $1.6mm of cash on hand. The abrupt decrease in cash caused several breaches of the minimum liquidity covenant under the senior credit facility, necessitating a May ‘24 forbearance agreement with the senior lenders.
Under the forbearance agreement, BFI agreed to run a sales process with the help of Kroll Securities Inc.** The prepetition lenders even extended $4mm of additional funds to facilitate the process.*** In addition, the debtors obtained an additional $2.5mm from their senior lender, TREW Capital Management Private Credit 2, LLC (“TREW”), as an “Emergency Protective Advance” on August 9, 2204, at which point the lenders imposed a deadline of August 28, 2024, on the debtors to obtain an LOI indicating a deal for proceeds to cover the outstanding senior secured credit facility in full ($60.3mm).****
Spoiler alert: the debtors failed to obtain an LOI. And bankruptcy!
So, what’s the goal here? The debtors are, given the pre-petition sale process, holding out hope that a buyer will emerge:
“In light of the outcome of that sales process, the Debtors are preparing proposed bid procedures and stalking horse asset purchase agreements which we are optimistic will be filed with the Court shortly.”
PETITION Note: As of the time of this writing (September 17, 2024), they are not yet on file.
The debtors intend to fund their post-petition marketing process with TREW’s backing. TREW committed to provide $5.18mm in new money along with a $10.36mm roll-up of the senior secured facility.***** The DIP carries a 12.5% PIK interest rate, a $100k origination fee, and a 2% exit fee.
The debtors are represented by Raines Feldman Littrell LLP (Thomas Francella Jr., David Forsh, Hamid Rafatjoo, Robert Marticello, Carollynn Callari) as legal counsel, Force 10 Partners (Jeremy Rosenthal, Nick Rubin) as financial advisor, and the aforementioned Kroll Securities as investment banker. TREW is represented by CM Law PLLC (Mette Kurth, Lynnette Warman) as legal counsel.
We eagerly await the filing of sale papers to see where the bids are coming in. Stay tuned.
*These filings only include the 67 corporate-owned locations. But apparently franchisees are pissed off. See this letter to Judge Goldblatt from a franchisee, highlights “hefty executive salaries and reimbursements” and a lack of support for franchisees.
**Not to be mistaken with the claims agent also named Kroll. Yeah, we’re also confused.
***$2mm came from TREW as the senior lender and $2mm from CP7 Warming Bag LP as the junior lender.
****Below the $60.3mm senior secured credit facility is a junior term loan of $18.1mm from and L. Catterton Fund affiliate, CP7 Warming Bag, L.P. Major equity holders include: Ophir Sternberg (17.4%), Walleye Capital LLC (13.4%), Lionheart Equities, LLC (11.2%), CG2 Capital LLC (10.6%), Lion Point Capital, LP (10.2%), and The John Rosatti Family Trust dated August 27, 2001 (9.9%).
*****$3.5mm of new money is available upon entry of an interim order and $1.68mm is available upon entry of a final order. $7mm of the roll-up will happen upon an interim order and $3.36mm will be rolled-up upon entry of a final order.
📤 Notice📤
Amanda Schaefer (Associate) joined Pryor Cashman LLP from Goodwin Procter LLP.
Michael Torkin (US Head of Capital Solutions & Special Situations) joined Linklaters from Simpson Thacher.
Scott Lepene (Partner) joined ArentFox Schiff LLP from Thompson Hine LLP.
🍾Congratulations to…🍾
Dan Kamensky on the launch of Restructuring Law Advisory P.C.
📚Resources📚
We have compiled a list of a$$-kicking resources on the topics of restructuring, tech, finance, investing, and disruption. 💥You can find it here💥.