TGI Fridays bankruptcy: Concerns about $50M in unused gift cards

Nov 06, 2024

As TGI Friday's bankruptcy process moves forward, some of the beleaguered chain's restaurants are afraid they will be stuck handling nearly $50 million in gift cards.

If you are a card holder, you may want to use your card sooner than later, so you aren't stuck holding something worth a fraction of its stated value. "Go use it, otherwise, you could end up in line for repayment behind a bunch of other creditors … (and) you'll be lucky, frankly to get pennies on the dollar for it," said John Bringardner, head of Debtwire, an analytics and debt tracking firm that assists businesses.

TGI Fridays Inc., the company that owns 39 of the restaurant chain's locations across the U.S., filed for Chapter 11 bankruptcy protection on Saturday. Concerns about $49.7 million in outstanding gift cards were raised by more than 60 TGI Fridays franchisees not included in the bankruptcy process at a Monday hearing in federal court in Dallas.

When a business declares bankruptcy, customers often rush to redeem gift cards because they are concerned the company might close up shop before they can use the cards. In TGI Friday's case, the nearly $50 million in cards – some more than 20 years old, according to court documents – far surpasses the $5.9 million that court filings show TGI Fridays Inc. is borrowing for its bankruptcy restructuring.

“I did a double take on that,” Judge Stacey Jernigan said during the Monday hearing, Bloomberg reported. “I was imagining, you know, grandparents who got gift cards for their kids in college and then it got thrown away.” Jernigan approved the company's initial bankruptcy steps, including the initial $3.3 million of the proposed $5.9 million bankruptcy loan.

Should a lot of customers rush to redeem their cards, faced with a potential "use it or lose it" situation, the independently-owned TGI Fridays franchises would have to honor them without any guarantee of being reimbursed by the company, attorney Jason Binford said during the hearing Monday, according to Reuters.

Usually, franchises take gift cards for payment and then seek reimbursement from the chain, Binford said. The franchisees are concerned they could be "left holding the bag if there is no source of funds to reimburse them," said Binford, who is representing more than 60 franchisees.

Beyond TGI Fridays Inc.'s 39 U.S. restaurants, there are 122 franchised locations in the U.S. and 316 franchised locations in other countries, according to its bankruptcy court filings.

TGI Fridays is just the latest restaurant chain driven to file for bankruptcy by increased competition for customers, as well as finicky and prudent diners. Red Lobster, which filed for bankruptcy in May, has begun to emerge from its restructuring.

TGI Fridays is among the many businesses and restaurant chains that "failed to exit the orbit of COVID," Bringardner said. "It impacted their locations and they never quite bounced back enough to bring business to pre-pandemic levels," he said.

As the company took on increased debt, customers began migrating to new fast casual restaurants, Bringardner said.

The private equity investors have mismanaged TGI Fridays in failing to react to competition and changes in consumer behavior, said Burt Flickinger, managing director at retail consulting firm Strategic Resource Group, which advises restaurants.

"They don't have a clue about the bluecollar struggling consumer who once a quarter or once a month goes to TGI Fridays to celebrate and is now at Buffalo Wild Wings or some other local operator venue," Flickinger said.

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Some gift cardholders may have already seen their favorite location close. Back in January, TGI Fridays closed several dozen "underperforming" locations in 12 states.

Even though all current locations are currently expected to remain open during the bankruptcy restructuring process, additional locations could close. So that is a consideration if you have gift cards you want to use.

"They have already indicated in court papers they're going to close a lot of the underperforming locations," Bringardner said.TGI Fridays Inc. said during the Monday hearing the company plans to honor obligations – including gift card reimbursements – to customers and franchisees and would discuss the matter with the franchisee association.

If you don't use the card, eventually you can file a bankruptcy claim and seek to get paid back whatever is owed. But "you're at the bottom of the payment stack, so what people advise is, if you got at gift card … go use it right now," Bringardner said.

TGI Fridays Inc., the company that filed bankruptcy on Saturday, owns 39 U.S. restaurants and is privately owned by TriArtisan Capital Advisors. TGI Fridays closed a total of about 50 locations in 2024 before filing for bankruptcy, according to court filings. The company has $37 million in debt and is seeking to sell its assets to an outside buyer by early January, Reuters reported.There are another 122 franchised independently owned TGI Fridays locations in the U.S. and 316 franchised locations in other countries, franchised by TGI Fridays Franchisor, LLC, according to the court filings.

Contributing: Reuters.

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