KBRA Comments on Hooters of America, LLC Chapter 11 Bankruptcy Filing

Hooters of America, LLC (Hooters, or the Company), who was the manager of and operates company-owned restaurants for HOA Funding LLC Series 2021-1, a whole business securitization (WBS), filed for bankruptcy protection on March 31, 2025. The filing affects 153 company-operated stores of the system’s 313 total locations (as reported at the end of Q4 2024), the majority of which are franchised. According to the Company’s claims agent, HOA Funding, LLC is among the debtors listed in the Chapter 11 filing. The transaction documents stipulate that an Event of Default of the Series 2021-1 Notes may be caused by—among other things—a commencement of any of the securitization entities’ bankruptcies or similar proceedings, including HOA Funding, LLC, the issuing entity.

While there has been no notice yet posted on the securitization's trustee’s website of a manager termination, such an event of bankruptcy of the manager would trigger a manager termination event of Hooters of America, LLC, according to the transaction documents. A manager termination event would permit the control party, at the direction of the controlling class representative, to declare a rapid amortization event wherein 100% of available funds are used to pay down the notes in alphanumerical order. This would be the second instance where a manager was terminated and filed for bankruptcy since the GFC.

According to the company website, the Company entered into a restructuring support agreement (RSA) to effectuate a sale transaction in order to operate under new ownership. The Company has reached an agreement “in principle” with a group of current franchisees to acquire and operate certain Company-operated Hooters locations. This group of franchisees is comprised of two Hooters franchisees (Hooters Inc. and Hoot Owl Restaurants LLC, collectively the Buyer Group) who collectively own and operate over 30% of the domestic franchised Hooters locations. According to Hooters Inc., the Buyer Group has negotiated key terms of a management agreement under which Hooters Brand Management, LLC, which is owned by the Buyer Group and other parties, will provide the majority of franchise support functions on behalf of the Company.

HOA Funding, LLC Series 2021-1 is collateralized by the Company’s existing and future domestic and international franchise agreements, existing and future company restaurants and related assets, intellectual property and certain transaction accounts. The $266.6 million Class A-2 Notes have a note factor of approximately 96.9% and are rated CCC (sf). The $40 million Class B Notes have not yet paid down any principal and are rated CCC- (sf). Both classes were downgraded in March 2025 due to deterioration in performance and limited liquidity.

According to the Q4 2024 servicer report, the funds collected from franchise remittances and company-operated locations’ royalties and profits were not enough to pay interest after more senior obligations in the priority of payments. As a result, the trustee had to withdraw funds from the interest reserve accounts to substantiate the approximately $3.1 million interest payments due on the Class A-2 Notes and the approximately $743,000 due on the Class B Notes. After the withdrawal, there were no funds remaining in the interest reserve accounts.

KBRA will continue to monitor developments in the transaction, including any performance trends and transition plans, as they occur.

Recent Publications

• HOA Funding, LLC Series 2021-1 Surveillance Report
• HOA Funding, LLC Series 2021-1 New Issue Report

About KBRA

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Doc ID: 1008892

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