Wiederhorn's Fatburger chain hits troubles

"Some landlords get it, some don't," Wiederhorn said. "They're misreading the economy. They sitting there demanding full payment of the rent or else. So they get nothing, a dark building, instead." Bankruptcy laws restrict a landlord's ability to collect rents and they give the debtor the right to reject a lease if they so choose.

The Oregonian
April 7, 2009

Wiederhorn's Fatburger chain hits troubles
Jeff Manning,

The economic downturn is taking a toll on California fast food chain Fatburger and the Portland man running the operation, Andrew Wiederhorn.

Cash-strapped Fatburger put two subsidiaries into bankruptcy Tuesday. Fatburger Restaurants of California and Fatburger Restaurants of Nevada, which between them operate 32 restaurants, filed Chapter 11 reorganizations in U.S. Bankruptcy Court for Central California.

The Chapter 11 filings will give the companies leverage to negotiate new, cheaper leases with its landlords, said Wiederhorn, CEO of Fog Cutter Capital Group, the Portland company that controls Fatburger. The restaurants need lower rents to make it through a painful recession, he added.

"Some landlords get it, some don't," Wiederhorn said. "They're misreading the economy. They sitting there demanding full payment of the rent or else. So they get nothing, a dark building, instead."

Bankruptcy laws restrict a landlord's ability to collect rents and they give the debtor the right to reject a lease if they so choose.

Fatburger is struggling to pay its bills in this difficult economy. The chain as well as its parent, Fog Cutter Capital Group, has been hit with a number of loan default notices, at least one eviction and other demands from unhappy creditors.

Fatburger has run afoul of its chief lender, GE Capital Solutions Franchise Finance. GE declared Fatburger in default of its loans on Dec. 9. Fatburger owes GE about $3.7 million.

Fatburger has reached a tentative settlement with GE, Wiederhorn said. But the bankruptcy has made it impossible to conclude the dispute, he said.

Fog Cutter purchased a controlling stake in Fatburger in 2003. Wiederhorn has overseen an international expansion, into markets in Asia and the Middle East. But that strategy hasn't been sufficient to turn around the company.

Fatburger's 2008 same-store sales will be down about 4 percent from the prior year, according to Wiederhorn. Fog Cutter lost $9.18 million through the first nine months of 2008.

Wiederhorn himself is feeling the effects of the economic downturn. On March 18, the IRS filed a tax lien against him and his wife, Tiffany. They owe $1,028,667 in personal income taxes, according to lien.

Wiederhorn did not dispute the amount, though he said it's part of a larger clash with the IRS.

"We have a complicated personal tax situation, some of which is in dispute with the IRS and will most likely be resolved in Tax Court in the future," Wiederhorn said in a written statement. "The IRS lien is perfectly appropriate and documents the amount we are not disputing while we work through the outstanding issues."

Wiederhorn added that he intends to pay the IRS in full the undisputed tax bill.

Wiederhorn's company, Fog Cutter, has struggled even to pay its longtime law firm, Portland-based Stoel Rives.

Last fall, Oregon Asset Co. sued Fog Cutter on Stoel Rives' behalf, seeking to collect $133,756 in legal fees and late charges.

The two sides settled their differences and the lawsuit dismissed last month.

Wiederhorn admits he's feeling the financial pinch.

"It's definitely a challenging environment for liquidity," he said.

http://www.oregonlive.com/news/index.ssf/2009/04/weiderhorns_fatburger_chain_hi.html


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