Steak ‘n Shake Inc. sued lender Fortress Investment Group LLC after the hamburger chain paid off overdue debt to avoid bankruptcy, accusing Fortress of misusing confidential information to mount a takeover bid.
The Indiana-based hamburger and shake chain, backed by businessman Sardar Biglari, said Fortress obtained confidential information through negotiations for a possible real estate deal with Steak ‘n Shake, and then used that knowledge to build a $ position. 89 million in the company. loans.
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After acquiring the loans, Fortress made it clear that it “would not accept a negotiated repayment” and said it would “force the company to pay the loans in full or file for bankruptcy,” according to the complaint.
Steak ‘n Shake paid off the loans in full on Friday, spending nearly $ 103 million to pay off debts and avoid filing for bankruptcy, the company said.
The Steak ‘n Shake lawsuit, filed Friday in Marion County Superior Court in Indiana, seeks to recover the alleged losses from Fortress stock.
Fortress did not immediately respond to a request for comment.
Steak ‘n Shake had been struggling with the impact of the COVID-19 pandemic on the restaurant business, moving from a table service model to a self-service one. To finance the transition and weather the pandemic, the company last year explored the sale of a portfolio of 15 real estate properties.
Fortress expressed interest in purchasing the properties and signed a confidentiality agreement to obtain information about them. But the investment firm did not make a real estate deal and began buying portions of the Steak ‘n Shake loan from other investors, ending up with more than 50% of the balance, according to the complaint.
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Steak ‘n Shake said management “thought it was providing this information to a potential counterparty to a real estate transaction, not a vulture investor” who was potentially seeking to take control by forcing the company into bankruptcy.
The company has been buying parts of the loan on the open market at a discount from other investors for months. But with the loan’s maturity approaching in March, Fortress said it would accept no less than full value, according to the lawsuit. Lenders are generally not required to accept anything less than a full refund.
Steak ‘n Shake said the information provided to Fortress about the 15 properties made it possible for the investment firm to extrapolate the total value of the company’s real estate and other details related to the value of Steak’ n Shake, which was helpful. for anyone who would like to buy the company.
The company had been preparing for a possible restructuring and hired legal and financial advisers for a possible out-of-court restructuring or filing for bankruptcy.
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Steak ‘n Shake has its roots in a hamburger joint founded in 1934. It went through a series of owners before Biglari took over in 2008 and invested heavily in expanding the business in the United States and abroad.