TGI Fridays Files Voluntary Chapter 11

TGI Fridays Inc.  filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in the Northern District of Texas on November 2.

In a statement, the owner and operator of 39 domestic restaurants in the casual dining chain, says its expects to use the time and legal protections made available through the Chapter 11 restructuring process to allow the company to explore strategic alternatives in order to ensure the long-term viability of the brand. 

"The next steps announced today are difficult but necessary actions to protect the best interests of our stakeholders, including our domestic and international franchisees and our valued team members around the world," said Rohit Manocha, Executive Chairman of TGI Fridays Inc. "The primary driver of our financial challenges resulted from COVID-19 and our capital structure. This restructuring will allow our go- forward restaurants to proceed with an optimized corporate infrastructure that enables them to reach their full potential." 

TGI Fridays Franchisor, LLC has franchised the brand to 56 franchisees in 41 countries. All of these franchise locations, both domestic and international, are independently owned and therefore not included in TGI Fridays Inc.’s Chapter 11 process. They are open and serving customers as usual. To ensure continuity of service to franchisees, TGI Fridays Franchisor, LLC has negotiated a Transition Services Agreement (“TSA”) with – and provided interim funding to – TGI Fridays Inc. to maintain support services for franchisees while TGI Fridays Franchisor, LLC works to implement a new long-term support structure. The brand will maintain operations across its corporate- owned restaurants in the U.S. The company has secured a commitment for debtor-in-possession financing to support operations while proceeding through the Chapter 11 process. It also filed motions with the Bankruptcy Court that, when approved, will allow the Company to, among other things, continue its customer programs in the normal course.

Ragini Bhalla, Head of Brand and Spokesperson, Creditsafe, noted that the brand's erratic payment behavior is a strong indicator of financial strain. 

"As Creditsafe data reveals, the restaurant chain has a spotty track record when it comes to paying suppliers on time. For instance, the company’s Days Beyond Terms (DBT) – which shows how late they typically pay their bills – spiked every few months, dipped for a month and then jumped back up over the last 12 months. If you look at 2024, we can see that the company’s DBT started off at 13, but then rose drastically to 23 the next month (February) and then dropped to between 13 and 15 for the next four months. But that didn’t last for too long and its DBT jumped back up to 27 in July. While it dropped again for one month (August), it once again spiked to 26 in September. This kind of volatility is a strong sign that cash flow is tight and the company is having trouble making on-time payments."

Bhalla also told Modern Restaurant Management (MRM) magazine that outstanding bills have been falling into the past due category for the last 12 months.

" Looking at the DBT, you can see that TGI Friday’s has struggled to pay its bills on time for the last 12 months. But Creditsafe data also shows that, in some months like July 2024, over 50 percent of its outstanding bills fell into the excessively late (91+ days) category. In October 2024, for example, 94.32 percent of its outstanding bills were categorized as being  1-30 days past due. When you look at these trends, it’s quite clear that the company’s liquidity has fallen and it’s becoming harder to take care of its financial responsibilities. So, if other debts are piling up and it’s a matter of choosing between paying operating expenses, employees and suppliers, suppliers may be lower on the priority list."

Looking toward  possible future outcomes, Bhalla said TGI Friday’s creditworthiness (or lack of) could affect its ability to find financing as it prepares for bankruptcy. 

"TGI Friday’s looks like it could be another casualty of the highly competitive fast-food market. With consumers favoring alternative options like Chipotle, Sweetgreen and Cava, TGI Friday’s sales have fallen, with same-store sales down 3.3 percent year-over-year. These challenges have also led to the closure of many TGI Friday’s locations – dropping from 286 in 2020 to 215 in 2023. And now it’s reported that the restaurant chain is searching for financing and bankruptcy could be on the horizon sooner than later. With the goal of restructuring its debts and stabilizing operations, Creditsafe data shows that its creditworthiness could become a sticking point for potential financial backers as it doesn’t paint a strong picture of the company’s ability to pay on time."

In recent weeks, foot traffic has been down more than 30 percent consistently, on a weekly basis, according to Placer.ai data. During the week of October 21, visits were down almost 39 percent year-over-year and the prior week, the week of October 14, they were down 31 percent.. The chain had already closed between 20 and 30 percent of its locations over the past year, which has put a serious dent in foot traffic. But visits per venue have fallen, too, while visits at full-service restaurants overall were actually up year-over-year during those two weeks.

“TGI Fridays–like most full-service restaurants–has faced an increasingly challenging environment in 2024," said R.J. Hottovy, Head of Analytical Research at Placer.ai. "Visitation trends are down year-over-year–due to a combination of store closures and fewer visits per existing location–at the same time food, labor, and other restaurant operating costs remain high. Additionally, we’ve seen consumers move away from many key TGI Fridays markets in the Northeast and Midwest, putting further pressure on visitation trends.”