RILY 8-K
BRC Group Holdings, Inc. (RILY)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Item 2.06 Material Impairments.
On August 12, 2024, B. Riley Financial, Inc. (the “Company”) announced that it expected to report for the quarter ended June 30, 2024 a non-cash markdown of approximately $330 million to $370 million related to its (i) equity investment (the “Freedom VCM Investment”) in Freedom VCM Holdings, LLC (“Freedom VCM”), the parent corporation of Franchise Group, Inc. (“Franchise Group”), and (ii) loan receivable (the “Vintage Loan Receivable”) from Vintage Capital Management, LLC (“Vintage”), which is primarily secured by a first priority perfected security interest in Freedom VCM equity interests owned by Brian Kahn and his spouse.
On November 3, 2024, Franchise Group, its operating businesses, and certain other affiliates, including Freedom VCM, commenced voluntary Chapter 11 proceedings in the U.S. Bankruptcy Court for the District of Delaware.
On November 4, 2024, the Company concluded that it is required to record an additional impairment with respect to the Freedom VCM Investment and the Vintage Loan Receivable. The Company expects that the non-cash impairments of the Freedom VCM Investment and the Vintage Loan Receivable will be approximately $120 million in the aggregate. As of the date of this report, the Company remains in compliance with the Nomura credit agreement notwithstanding the items described in this report.
Item 7.01 Regulation FD Disclosure.
On November 4, 2024, the Company will circulate an email communication to employees, a copy of which is attached hereto as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference. The information in this Item 7.01 shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any registration statement or other filing under the Securities Act of 1933, as amended, or the Exchange Act, except in the event that the Company expressly states that such information is to be considered filed under the Exchange Act or incorporates it by specific reference in such filing.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
The exhibit listed in the following Exhibit Index is furnished as part of this Current Report on Form 8-K.
| Exhibit No. | Description | |
| 99.1 | Email communication to employees dated November 4, 2024 | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
Forward-looking statements
This Current Report on Form 8-K and the related exhibit contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are forward-looking statements. These forward-looking statement include statements regarding the Company’s ability to monetize additional assets and pay down additional debt and the Company’s prospects and management’s outlook for the Company generally. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the Company’s performance or achievements to be materially different from any expected future results, performance, or achievements. Forward-looking statements speak only as of the date they are made and the Company assumes no duty to update forward looking statements, except as required by law. Actual future results, performance or achievements may differ materially from historical results or those anticipated depending on a variety of factors, some of which are beyond the control of the Company, including, but not limited to, the risks described from time to time in the Company’s periodic filings with the SEC, including, without limitation, the risks described in the Company’s 2023 Annual Report on Form 10-K and in B. Riley Financial’s Quarterly Reports on Form 10-Q for the period ended March 31, 2024 under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (as applicable). These factors should be considered carefully, and readers are cautioned not to place undue reliance on such forward-looking statements. All information is current as of the date this press release is issued, and the Company undertakes no duty to update this information, except as required by law.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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B. Riley Financial, Inc. | |
| By: | /s/ Phillip J. Ahn | |
| Name: | Phillip J. Ahn | |
| Title: | Chief Financial Officer and Chief Operating Officer | |
Date: November 4, 2024
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Exhibit 99.1
Company Email to Employees
Last night Franchise Group filed for bankruptcy.
This is not the outcome we ever envisioned. I feel personally sick about this result. There will likely be no equity recovery for all the constituents that participated, including the B. Riley shareholders, 69 employees, wealth clients and institutions that rolled their shares from the public entity and new institutional shareholders that participated.
The dynamic of FRG’s bankruptcy is a confluence of events that ultimately derailed our original investment thesis. I, along with 300 other investors, plus lenders, many of whom had 20-plus year relationships with the former FRG CEO, all believed in this investment opportunity. Unfortunately, the investment was devastated by the precipitous decline in consumer spending in the markets served by the FRG brands, and the fallout and uncertainty from the Prophecy scandal and the related federal investigation into Brian Kahn. These headwinds changed the economics of the investment and the timetable for executing on FRG’s strategy, including the potential monetization of assets, in a way that could not have been anticipated.
While we could not have foreseen the issues associated with Prophecy, as our CEO, largest shareholder, and one of the most significant individual investors in the FRG take-private, I took ownership of the efforts to address the issues and did everything in my power to salvage the investment. Ultimately, these efforts were not enough. After spending 27 years building a firm that I could not be prouder of, I hate that B. Riley has, for now, been distilled by many outside the firm into a single investment.
I appreciate everyone who has grinded the past 12 months and has had to endure this pain. Whether it’s internet short sellers trading weekly options and feeding sensational stories to one-sided journalists or competitors aggressively targeting your livelihood by trying to poach customers and colleagues, you’ve faced enormous pressure and for that I am deeply sorry.
As painful as those paragraphs were to write and read, I want to be clear: OUR FIRM WILL MOVE PAST THIS AND THRIVE.
Despite the negative headlines, we are in far better shape than folks give us credit for. We took a lot of difficult, but necessary actions over the last 12 months to ensure we could withstand the deterioration in FRG as it developed and ultimately culminated in this outcome:
| ● | We monetized more than $500 million of equity and debt assets. |
| ● | We maintained strong capital levels in all our regulated entities. |
| ● | We continued to INVEST in many of our businesses, including Great American, Brands, Wealth Management and Advisory (Glass Ratner). |
| ● | We mapped out a contingency monetization strategy, which resulted in the recent sales of a majority equity stake of Great American Group and our Brands portfolio that cumulatively will raise (when Great American is completed) another approximately $400 million in proceeds. |
- BR
| ● | We also developed a strategic off ramp for Wealth advisors who wanted a fresh start, resulting in the transaction with Stifel announced on Friday. This will raise another $30 to $40 million in proceeds. |
We are confident we will be able to monetize other private non-operating assets over the coming months that will result in our Nomura senior facility being paid off and our near-term bonds being paid in cash. In fact, we expect that the Nomura facility will be paid down to $125 million by the end of the month. Finally, when additional assets are sold next year, we believe we will have sources of liquidity of more than $300 million of cash and $500 million of investments. Our balance sheet will be utilized to enhance our financial services business and opportunistically retire our baby bonds, which trade at a meaningful discount to par.
We are positioning to be on the OFFENSIVE for the first time in too long.
Make no mistake – the people here are our biggest asset, and I’d never bet against this group. Our collection of talent is one of the many reasons I’m positive about the next few years.
| 1. | Despite the challenges, all our key management leaders are here, focused and ready to go. This is a battle-hardened, resilient group that will not be outcompeted. |
| 2. | We have demonstrated that the assets on our balance sheet are stronger than the market might suggest. |
| 3. | Our capital base as we exit 2024 and begin 2025 should provide us with the ability to return to growth. |
| 4. | Our relationships with our banks, vendors and clients remain sound. |
I know it hasn’t been easy, but I truly appreciate every one of you for sticking with us. We are turning a corner.
- BR