What the Franchise Group take-private cost B. Riley

analysisAt the closing a B. Riley subsidiary restructured its loan to Kahn's investment firm. On August 21, 2023 the subsidiary and Vintage Capital Management, LLC (VCM), an affiliate of Kahn, amended and restated a promissory note for $200.5 million of principal, bearing 12.00% a year paid in kind and maturing on December 31, 2027. VCM had to make mandatory prepayments from proceeds that it, Kahn or his affiliates received from Freedom VCM distributions (the greater of 80% of net after-tax proceeds and 50% of gross proceeds), and the note was primarily secured by a first-priority security interest in Freedom VCM equity owned by Kahn and his spouse, valued at $227.3 million at the transaction price. B. Riley's filings use the name for different entities: its 2026 quarterly report names the distributing company Freedom VCM, Inc., while its annual report uses "Freedom VCM" for Freedom VCM Holdings, LLC. ^{1 2}

analysisB. Riley treats VCM and Kahn as related parties: it has determined that they are related (as of December 31, 2024, December 31, 2025 and June 30, 2026) because any repayment of the note would have come primarily from Freedom VCM distributions or from foreclosure on the Freedom VCM equity and other collateral provided by Kahn and his spouse. It does not consolidate the borrower, stating that it was not involved in designing it, has no equity interest in it and has no rights to direct its significant activities. ¹

analysisFRG's chief restructuring officer described the ownership of FRG's ultimate parent in the first-day declaration of November 4, 2024: after the take-private Kahn and his affiliates owned about 32.4% of the equity of Freedom TopCo, and B. Riley Principal Investments, LLC and its affiliates, which provided equity financing, owned about 58.9%. B. Riley's own filings report a 31% voting interest held by its subsidiaries; the declaration measures equity held by BRPI "and its affiliates", and the records do not reconcile the two figures. ¹

analysisAt the closing B. Riley's second Badcock receivables vehicle was also sold. All equity of B. Riley Receivables II, LLC, then majority-owned by B. Riley, was sold to Freedom VCM Receivables, Inc., a Freedom VCM subsidiary, for $58.9 million, paid with a non-recourse promissory note of another Freedom VCM affiliate bearing 19.74% and maturing on August 21, 2033, payable solely from the performance of certain receivables. FRG's chief restructuring officer described BRRII as an affiliate of BRPI, the note as in favour of BRPI and a minority owner of BRRII, and BRRII as renamed Freedom Receivables II, LLC. Under an amended and restated funding agreement of December 18, 2023 among BRPI, a minority owner of BRRII, Freedom Receivables II, Freedom VCM Interco Holdings and Freedom VCM Receivables, once the third-party credit facility that had financed the 2022 receivables purchase was repaid (in June 2024), the receivables company was to deliver "Tranche 1" receivables of up to about $15.3 million to a BRPI affiliate, with any remaining amount of the note cancelled. The full amount was paid in early October 2024 and the note was cancelled on October 9, 2024, with certain BRRII receivables transferred to an entity the filing calls "BRRI"; the loan receivable B. Riley then carried in respect of those receivables, measured at $3.9 million at December 31, 2024, was sold on February 7, 2025 (the sale of the Badcock receivables loans is described below). ^{2 1}

analysisBadcock itself was sold by Freedom VCM to Conn's, Inc. on December 18, 2023, and a B. Riley subsidiary lent Conn's $108.0 million under a term loan at Term SOFR (with a 4.80% floor) plus 8.00%, maturing on February 20, 2027; FRG acquired a substantial equity investment in Conn's in a transaction completed in January 2024. After a $15.0 million principal payment on February 14, 2024 the loan stood at $93.0 million, and the Chapter 11 filings of Conn's and certain subsidiaries in July 2024 accelerated it. B. Riley reported the loan as a related-party receivable because of its prior relationship with Freedom VCM and Freedom VCM's ability to influence Conn's. ¹

analysisIn mid-2024 a B. Riley subsidiary also worked for Conn's. Under a consulting agreement of June 27, 2024 (amended July 19, 2024), the subsidiary sold merchandise and fixtures at Conn's and Badcock stores and facilities; the agreement was assumed by the Conn's debtors, and the subsidiary earned $26.1 million until it was sold with the Great American Group business on November 15, 2024. ¹

analysisThe Conn's term loan had a fair value of $19.1 million at December 31, 2024 and of zero at December 31, 2025; B. Riley recorded unrealized losses of $71.7 million on it in 2024 and gains of $0.8 million in 2025, and its annual report also records additional cash payments of $19.9 million on the loan during 2025. On December 17, 2024 it bought the first-lien Conn's loan from the first-lien banks for $27.7 million, which was repaid in full on January 24, 2025. The term loan was written off effective January 1, 2026, and in the first half of 2026 B. Riley recovered $8.6 million from its collateral. ^{1 2}

analysisThe Badcock receivables loans left B. Riley's books in 2025: on February 7, 2025 it sold the two loans receivable that it carried for the Badcock receivable purchases of December 2021 and 2022–2023 and recorded net realized losses of $38.1 million; it no longer owned them at December 31, 2025. ¹

analysisFRG, its operating businesses and affiliates including Freedom VCM filed Chapter 11 cases on November 3, 2024. Freedom VCM Holdings, LLC's own voluntary petition, filed that day in the U.S. Bankruptcy Court for the District of Delaware (Case No. 24-12496), is listed under the lead case of Franchise Group, Inc. (No. 24-12480); the docket summary records it as terminated on October 6, 2025. On November 4, 2024 B. Riley concluded that further impairment was required: it ascribed no value to the Freedom VCM investment at December 31, 2024 and reported 2024 non-cash impairments of $221.0 million on that investment and $222.9 million on the Vintage loan receivable, which it valued at $1.8 million at December 31, 2025. Its 2025 annual report also records a 2024 loss of $287.0 million from the change in fair value of the Freedom VCM equity investment, which was written off after B. Riley lost significant influence. ^{1 2}

analysisTwo passages of the chief restructuring officer's first-day declaration concern B. Riley. The restructuring support agreement attached to it provides that, for its purposes, neither Conn's, Inc. nor B. Riley Financial Inc. nor their respective affiliates (other than Freedom VCM Holdings, LLC and its subsidiaries) are "Affiliates" of the FRG debtors. The declaration also states that the debtors' special committee directed an independent investigation of potential claims against Kahn, other current or former directors and officers or third parties arising from, among other things, what the declaration calls FRG's December 2023 sale of Badcock to Conn's, the take-private, the acquisition of B. Riley Receivables II (FRII) and other transactions with BRPI and its affiliates, and the debtors' historical relationship with Kahn. An investigation of potential claims is not a finding; the claims later filed by the FRG Litigation Trust are described with that proceeding. ³

analysisOn June 1, 2025 the U.S. Bankruptcy Court for the District of Delaware entered an order confirming the Ninth Amended Joint Chapter 11 Plan of Franchise Group, Inc. and its affiliated debtors, under which all equity interests were cancelled and equity holders, including Freedom VCM as FRG's equity holder, receive no property or distributions. B. Riley states that it does not expect proceeds from the Freedom VCM equity of Kahn and his spouse that collateralized the VCM loan; in February 2026 it collected $1.855 million from the sale of all remaining collateral for the Vintage loan and it expects no further collections. ⁴

analysisOne operating link with Freedom VCM runs through bebe stores, inc., a majority-owned B. Riley subsidiary whose rent-to-own stores are franchised through Freedom VCM. Freedom VCM charged bebe royalty, marketing and IT fees of $3.3 million in 2025 and $4.9 million in 2024, bebe bought $9.0 million and $15.3 million of inventory from Freedom VCM in those years, and at December 31, 2024 bebe owed related parties $2.8 million for these stores. ¹

analysisB. Riley's filings also report a fully impaired loan made in November 2023: on November 2, 2023 BRPI and other lenders made a $25.0 million loan to Torticity, LLC, of which BRPI committed $15.0 million, bearing 15.00% a year; BRPI transferred the note to B. Riley Commercial Capital, LLC on November 20, 2023, and the loan remained fully impaired, with no fair value at June 30, 2026. The 2025 annual report lists it among related-party loans receivable, alongside the Vintage, Badcock, Freedom VCM Receivables and Conn's loans. ^{2 1}

analysisThe class plaintiffs, as summarized in the court's December 12, 2025 order, allege that the company devoted about $480 million of its balance sheet to Freedom VCM, more than its $413.8 million of stockholders' equity, that the VCM loan was its largest single principal investment, at 36% of its loan receivable balance, and that its total financial exposure to Kahn, VCM and Freedom VCM exceeded its shareholder equity. These are allegations summarized on a motion to dismiss, not findings of fact. ¹

analysisA newspaper reported in October 2024 that in August 2024 B. Riley announced a markdown of up to $370 million of its Franchise Group investment and the Vintage loan, suspended its quarterly dividend and disclosed SEC subpoenas concerning its dealings with Kahn; the stock fell to a low of $4.51, Nasdaq halted trading several times, and Riley, who owned 24% of the common stock, later offered to take the company private at $7 a share. A subpoena is a request for documents or testimony, not a finding of wrongdoing. Riley said at the time that he was confident regulators would find the firm "had no involvement with or any knowledge of alleged misconduct concerning Brian Kahn or his affiliates." ²

analysisA December 2025 newspaper report on Kahn's guilty plea said B. Riley had provided $600 million, through debt it raised, to finance Kahn's $2.8 billion management buyout of Franchise Group in 2023, had taken a 31% stake and had lent Kahn's investment fund $201 million largely secured with FRG shares; it said the failed deal led to large losses and that B. Riley's shares, which approached $90 in 2021, traded at $3.98. Its figures are on a different basis from B. Riley's own filings on the equity interest and the VCM note. The report noted that Riley has denied knowledge of wrongdoing and that an outside law firm reached the same conclusion. ³