Wendy’s Franchisee Meritage Files for Chapter 11

Meritage Hospitality Group, one of the largest U.S. Wendy’s franchisees, filed for Chapter 11 bankruptcy protection Sept. 17 as it seeks to reduce financial pressure on a restaurant business that has reported declining sales and earnings.

The Grand Rapids, Michigan-based company operates 314 Wendy’s restaurants, one Bojangles and five independently branded concepts across 15 states. It expects restaurants to continue operating during the restructuring and intends to keep paying its approximately 9,000 employees, subject to court approval of customary motions.

Meritage attributed its difficulties partly to sustained pressure on the Wendy’s brand. Its concentration in that chain has left it particularly exposed to those conditions. The company said it had spent more than a year working with lenders and its franchisor before deciding on a court-supervised restructuring.

Its second-quarter results show the strain. Sales fell to $150 million from $163.5 million a year earlier, although the prior-year period included about 40 more restaurants. Restaurant operating income dropped to $10.3 million from $15.2 million. Meritage posted a $13.6 million net loss, compared with a $300,000 profit a year earlier; the latest quarter included $13.8 million in restructuring and closing costs.

Meritage said it was seeking debtor-in-possession financing to support operations alongside cash generated by the restaurants. It also plans to ask the U.S. Bankruptcy Court for the Western District of Michigan for permission to pay wages and benefits and honor customer programs. The company said it intends to pay suppliers for goods and services provided after the filing.

McDonald Hopkins LLC is serving as legal counsel and Fort Dearborn Partners is serving as restructuring advisor to the Company in connection with this process.