True Food Kitchen gets interim borrowing approval

True Food Kitchen received interim court approval October 6 to borrow up to $5 million from HumanCo TFK IV, within a conditional $20 million commitment.

The health-focused chain entered bankruptcy October 4 with a smaller footprint. Chief restructuring officer Nathan Cook said True Food Kitchen had expanded to 46 restaurants and was operating 34 after closing 12 alongside the filing. FRC Balance, its principal asset-holding and administrative entity, and eight affiliates are the debtors, according to Cook's declaration.

Cook attributed the company's difficulties to management turnover, unsuccessful investments beyond its core concept and underperforming locations. He said experiments with ghost kitchens and a separate delivery kitchen had ended after impairing staffing and the dining experience. Before filing, the company reduced corporate headcount and renegotiated vendor contracts, he said.

How the financing works#

The order makes the commitment binding. The initial advance requires an approved budget and satisfaction or waiver of other funding conditions. The remaining $15 million requires final court approval and would arrive in six successive advances tied to steps including bidding-procedure approval, an opening purchase agreement and buyer selection. The court deferred adopting case milestones until the October 27 final financing hearing.

The urgency comes from the company's cash position when it filed. In a financing declaration, SOLIC Capital Advisors senior managing director George Koutsonicolis said approximately $1.6 million of unrestricted cash would cover about two weeks of operations and bankruptcy administration without additional liquidity.

SOLIC contacted 38 potential lenders, obtained 11 confidentiality agreements and received two term sheets, he said. Its evaluation favored HumanCo's combination of liquidity, execution certainty and timing after comparing both offers' economics and funding conditions.

The competing proposal offered $2 million initially and required a qualifying opening bid and a buyer-funded deposit before further draws, according to his account. That comparison informed SOLIC's recommendation.

HumanCo already has ties to the business. Koutsonicolis said the new lender and HumanCo TFK III share management. HumanCo TFK III is an existing creditor and, together with affiliates, holds approximately 42.1% of True Food Kitchen Investco's fully diluted units. It also has board-designation rights. Cook reviewed and approved the financing for the debtors because of those relationships, the declaration says.

A separate October 6 order permits use of cash that serves as creditor collateral. Spending follows an approved budget. Testing every two weeks compares receipts and disbursements, with explanations required for material variances.

Sale and investment options#

An October 6 motion seeks a process allowing three outcomes: an asset sale, a sale through a Chapter 11 plan, or an investment in exchange for equity in the reorganized companies. These are proposed bidding procedures; the motion identifies no selected buyer.

The debtors say a plan could better preserve leases, permits and licenses for a buyer acquiring the operating restaurant business. They specifically identify alcohol and beverage permits held by True Food Beverages that may not readily transfer in an asset sale. An investor could instead preserve the existing corporate structure through a recapitalization.

A competing bidder chosen over the lender's credit bid, which uses debt owed as purchase consideration, would also have to fund estate administration and wind-down. Those provisions cover bankruptcy costs, including fees and reserves, alongside a proposed transfer of the operating business.

The company says discussions with potential opening bidders, including the lender, continue.

Closures, leases and guests#

The 12 closed restaurants stopped serving at the end of October 4, according to the company's lease-rejection motion. It requests October 8 rejection dates for those premises and the Scottsdale headquarters. The company says the intervening days allow removal of valuable equipment and property. Rejecting unused leases would avoid continuing expenses without a corresponding operating benefit. That request remains separate from the restaurant closures already reported.

For guests, True Food Kitchen's current restructuring FAQ says its other restaurants remain open, with dine-in, delivery and catering available as usual. Gift cards remain accepted, and the company says Chapter 11 is bringing no menu or pricing changes.

An October 5 interim customer-program order authorizes continued programs and the honoring of related pre-bankruptcy obligations. If the company later decides to stop accepting gift cards, it must file notice at least 14 days beforehand and post prominent website notices at least seven business days before the change.