B. Riley Financial (RILY) shares took a significant dive on Monday following the announcement of a substantial $120 million impairment charge related to its investments in Franchise Group. This news comes after Franchise Group, a retailer backed by B. Riley, filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware on Sunday. The bankruptcy filing sent shockwaves through the market, causing B. Riley’s stock to tumble.
The situation is even more dire for B. Riley, as the company revealed it might face another $120 million impairment due to its investments and loans tied to Franchise Group. This is not the first time B. Riley has signaled potential losses related to Franchise Group. In a memo to staff, B. Riley co-CEO Bryant Riley expressed his disappointment and frustration, stating, “I hate that B. Riley has, for now, been distilled by many outside the firm into a single investment.”
The bankruptcy of Franchise Group is a major blow for B. Riley, which had previously backed a management-led takeover of the retailer last year. The company’s investment in Franchise Group has been under scrutiny from regulators due to financial and operational challenges facing the retailer. In July, B. Riley and its CEO were subpoenaed by the Securities and Exchange Commission (SEC) regarding their involvement with Franchise Group’s former CEO, Brian Kahn. However, an internal review cleared B. Riley of any misconduct.
Despite the findings of the internal review, B. Riley’s shares have experienced a significant decline this year, dropping roughly 76% since the beginning of 2023. In an attempt to shore up its balance sheet and stem the stock decline, B. Riley has been actively divesting non-core units.
The impact of this news is evident in the market. At the time of writing, B. Riley Financial shares were down 13.7% at $4.92. The future of B. Riley Financial and its ability to recover from this setback remains uncertain, but the current situation highlights the risks associated with investments in struggling companies.
