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Steak ‘n Shake Inc. sued the lender Fortress Investment Group LLC after the cafeteria chain paid debts to avoid bankruptcy, accusing Fortress of misusing confidential information to mount a takeover bid.
The Indiana-based milkshake and hamburger chain, backed by entrepreneur Sardar Biglari, said Fortress obtained confidential information through negotiations for a potential real estate deal with Steak ‘n Shake, and then used that knowledge to build a position of $ 89 million in 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 either force the company to repay the loans in full or declare 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 bankruptcy, the company said.
The Steak ‘n Shake lawsuit, opened Friday at the Superior Court in Marion County, Indiana, seeks to recover alleged losses from Fortress’ shares.
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 model. To finance the transition and resist the pandemic, the company last year explored the sale of a portfolio of 15 real estate properties.
Fortress expressed interest in buying the properties and signed a confidentiality agreement to obtain information about them. But the investment firm did not make a real estate deal and started buying parts of the Steak ‘n Shake loan from other investors, taking 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 to a vulture investor” seeking to take over, forcing the company into bankruptcy.
The company has been buying part of the loan on the open market for months at a discount from other investors. But with the loan due in March, Fortress said it would take no less than the full amount, the suit said. Creditors are generally not required to accept anything less than full repayment.
Steak ‘n Shake said the information provided to Fortress about the 15 properties allowed the investment firm to extrapolate the total value of the company’s properties and other details about the value of Steak’ n Shake, which are useful for anyone looking to buy the company.
The company had been preparing for a possible restructuring and hired legal and financial advisors for a possible extrajudicial restructuring or bankruptcy.
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Steak ‘n Shake has its roots in a hamburger stand founded in 1934. It passed through a series of owners before Biglari took control in 2008 and invested heavily in expanding business in the United States and abroad.