Wendy’s Was Owed Nearly $25 Million Before One of Its Largest Franchisees Filed Bankruptcy
Months before Chapter 11, public records were already showing defaults, fee relief, lender forbearance, restaurant closures, and weakening unit-level economics. The warning signs were there. They just were not all in one place.
Relevant FDD Topics: Item 6, Item 7, Item 17, Item 19, Item 20, Item 21, Franchise Agreement
This report is for educational purposes only and is based on publicly available Franchise Disclosure Documents, corporate financial reports, bankruptcy filings, and company disclosures reviewed as of September 20, 2026. Meritage Hospitality Group’s Chapter 11 case remains pending, and several core bankruptcy schedules and financial disclosures have not yet been filed. References to debts, defaults, fee deferrals, closures, and restructuring efforts reflect the terminology used in those source documents. The approximately $24.9 million unsecured claim listed by Wendy’s franchisor is identified in the bankruptcy filing as “Franchisor Deferred Fees,” but the currently available bankruptcy record does not fully explain the composition, timing, or contractual treatment of those amounts. Nothing in this report should be interpreted as legal, investment, or financial advice.
On September 17, 2026, Meritage Hospitality Group filed for Chapter 11 bankruptcy protection in the Western District of Michigan. This was not a small franchise operator with a handful of struggling restaurants. Meritage had reported operating 355 Wendy’s restaurants at the end of fiscal 2025 and described itself as one of the nation’s largest Wendy’s franchisees. By the time it entered Chapter 11 nine months later, the company said it was operating 314 Wendy’s restaurants across 15 states, along with one Bojangles restaurant and several independently branded concepts.
That scale makes the bankruptcy significant on its own. But the more interesting story is not simply that one of Wendy’s largest franchisees eventually filed Chapter 11. It is how much of the deterioration was already visible before the bankruptcy made the problem obvious.
Meritage’s fiscal 2025 annual report had already disclosed operating losses, negative cash flows, defaults with both its lenders and Wendy’s franchisor, an inability to meet certain obligations as they became due, franchisor fee relief, lender forbearance, paused or amended development and reimaging requirements, restaurant closures, and substantial doubt about the company’s ability to continue as a going concern. Wendy’s Franchise Disclosure Documents were simultaneously showing changing restaurant-level economics, substantial transfer and closure activity, and, by May 2026, a specific list of current-year closures that included multiple Meritage operating entities.
Then the bankruptcy filing added another number to the picture: Wendy’s franchisor was owed nearly $25 million.
Wendy’s Is the Largest Unsecured Creditor
Meritage’s initial bankruptcy filings identify Quality Is Our Recipe, LLC, the entity that serves as the Wendy’s franchisor, as its largest unsecured creditor. The claim is listed at $24,932,090.34 and described as “Franchisor Deferred Fees.”
The size of that claim becomes even more notable when it is compared with the rest of the creditor list. The next-largest unsecured claim is a $3 million acquisition loan owed to Superior Restaurant Group. A disputed termination settlement is listed at approximately $2.54 million. From there, the listed claims quickly fall into the hundreds of thousands of dollars. Wendy’s $24.9 million claim stands apart from the rest of the unsecured creditor schedule.
There is an important limitation, however. The initial filing does not break that amount into royalties, advertising contributions, rent, technology charges, development obligations, or other franchise-related fees. It also does not tell us exactly when the amounts began accumulating or which portions were formally deferred under agreements between Wendy’s and Meritage. Calling the entire amount “unpaid royalties,” for example, would go beyond what the current record establishes.
What the filing does establish is that by the time Meritage entered Chapter 11, nearly $25 million in obligations to the Wendy’s franchisor were sitting on the books as deferred franchise fees. The bankruptcy is only days old, but the public record suggests the financial relationship between Wendy’s and Meritage had been under significant strain for considerably longer.
The Bankruptcy Was Not the First Warning
Meritage is somewhat unusual in the franchise world because its financial condition was not entirely hidden inside privately held operating entities. The company trades publicly on the OTCQX market and publishes financial statements, giving prospective franchisees, investors, and anyone willing to look beyond the FDD access to information that normally would not be available about another franchise operator.
Its fiscal 2025 annual report contained an unusually direct warning. Meritage disclosed operating losses and negative cash flows that had left it unable to meet certain obligations as they became due. During the fourth quarter of 2025, the company received notices of default from both its primary lender and Quality Is Our Recipe, LLC. Those defaults included failures to maintain certain financial covenants and failures to pay obligations when due, including obligations owed to the franchisor. Meritage stated that these conditions raised “substantial doubt” about its ability to continue as a going concern.
The company was already attempting to restructure around those problems. Meritage said it was working with its lenders to restructure credit agreements, pursuing fee relief from Wendy’s, modifying restaurant reimaging and development requirements, and conducting portfolio optimization. Its primary lending group entered into a waiver and forbearance agreement effective in November 2025, followed by an amended agreement in January 2026. Meritage also obtained a separate forbearance agreement from Old National Bank.
Wendy’s was therefore not learning about Meritage’s financial problems for the first time when the bankruptcy petition arrived in September. The franchisee had already defaulted on obligations under its franchise agreements, and the parties had already been working through some form of financial accommodation.
That context makes the $24.9 million deferred-fee claim considerably more interesting. The bankruptcy filing does not yet tell us how the amount developed, but it is now clear that the financial stress between one of Wendy’s largest operators and the franchisor preceded Chapter 11 by many months.
The Portfolio Was Already Shrinking
Meritage had also begun reducing its restaurant portfolio before bankruptcy. Its fiscal 2025 disclosures reported 22 restaurant closures during the year, with additional closures anticipated in 2026. The company described these actions as part of a broader effort to remove underperforming locations and improve the performance of the remaining portfolio.
By September 2026, Meritage said it was operating 314 Wendy’s restaurants, compared with the 355 Wendy’s locations it reported at the end of fiscal 2025. That is a reduction of 41 restaurants in less than a year. It would be inappropriate to characterize all 41 as closures because restaurants can leave an operator’s portfolio through sales, transfers, reacquisitions, closures, or other transactions. But the direction is clear: Meritage’s Wendy’s portfolio was contracting materially before the Chapter 11 filing.
Some of that contraction was also visible inside Wendy’s own disclosure documents.
Wendy’s amended its 2026 FDD on May 29, 2026. Unlike the prior FDD format, the amended document contains an 11-page Exhibit R titled “2026 Fiscal Year to Date Restaurant Closures.” Among the franchisees named in that exhibit are several entities that appear only months later as debtors in Meritage’s bankruptcy case.
The bankruptcy ownership filings show that Wen Georgia, Wen Carolinas, Wen Ohio, Wen Oklahoma, Wen South, Wen Tennessee, and Wen Virginia were part of the Meritage corporate structure and filed Chapter 11 with the parent company.
By the May 29 FDD amendment, Wendy’s was already reporting nine 2026 closures associated with Wen South in Florida. Those restaurants included locations in Jacksonville, Orange Park, Ponte Vedra, Tallahassee, and St. Johns, with reported closure dates ranging from March through May.
The same exhibit listed five Wen Oklahoma closures, including locations in Oklahoma City, Yukon, Mustang, and Weatherford. It listed two Wen Georgia closures, both on April 26. Wen Tennessee was associated with five Tennessee closures and one additional closure in Horn Lake, Mississippi. Wen Virginia had two Richmond-area closures listed in the exhibit.
Taken together, at least 24 closures disclosed in Wendy’s May 2026 FDD were associated with entities that would enter bankruptcy with Meritage less than four months later.
A prospective franchisee reading the amended FDD in May could not have known that Meritage would file Chapter 11 in September. The FDD did not say that. But it was already providing pieces of the story.
The difficulty was knowing how to connect them.
Item 19 Was Telling One Story, but Not the Whole Story
The distinction becomes even more important when Item 19 is brought into the analysis.
Wendy’s 2026 FDD reported average annual gross sales of approximately $2.25 million for qualifying company-operated restaurants and approximately $1.99 million for qualifying franchised restaurants during fiscal 2025. For traditional company-owned restaurants, the more detailed profit-and-loss presentation reported average gross sales of $2,259,654 and average restaurant EBITDA before rent of $364,193, or 16.1% of average revenue.
Those numbers become more meaningful when compared across multiple FDDs.
For fiscal 2023, Wendy’s traditional company restaurants reported average gross sales of approximately $2.287 million and average restaurant EBITDA before rent of $416,169, an 18.2% margin. In fiscal 2024, average sales increased to approximately $2.339 million, while average EBITDA before rent increased slightly to $425,995, again representing 18.2% of average revenue.
Then the trend changed. Fiscal 2025 average sales declined to approximately $2.260 million, but average EBITDA before rent fell much more sharply to approximately $364,000. In percentage terms, average sales declined by roughly 3.4% from 2024 to 2025, while average EBITDA before rent declined by approximately 14.5%.
That difference is more useful than either number alone.
A business can still generate more than $2 million in annual sales while its economics are deteriorating meaningfully. Labor, food, occupancy, repairs, maintenance, discounts, required reinvestment, and other operating costs do not necessarily fall simply because customer traffic or revenue has softened. A relatively modest reduction at the top of the income statement can therefore produce a much larger reduction farther down.
There is another limitation prospective franchisees need to understand. Wendy’s detailed EBITDA figures in Item 19 are based on qualifying company-operated restaurants, not Meritage restaurants, and not the results of a typical Wendy’s franchisee. The FDD separately identifies a standard 4% royalty as an additional operating expense applicable to franchised restaurants. Meritage, as a very large operator, would also have economies of scale and a cost structure that could differ substantially from a smaller franchise organization.
The point is not to use Wendy’s Item 19 to manufacture a Meritage profit-and-loss statement. It is to recognize the direction of the economics being disclosed. Company-store sales were declining modestly, while the restaurant-level earnings measure was declining considerably faster.
Item 20 Was Showing Considerable Movement Underneath the System
Item 20 adds another layer that can easily be missed when franchise buyers look only at net unit growth.
Wendy’s finished 2023 with 5,627 U.S. franchised restaurants. During 2024, that number fell to 5,552, a net decline of 75 franchised locations. In 2025, the net movement was much smaller, with the franchised system declining by only six restaurants to 5,546.
A six-unit net reduction across a system of more than 5,500 franchised restaurants does not sound particularly significant until the activity underneath that number is examined.
During 2025, Wendy’s reported 100 franchised openings, 3 terminations, 15 non-renewals, 35 restaurants reacquired by the franchisor, and 53 restaurants that ceased operations for other reasons. Those transactions ultimately produced a net change of only six restaurants, but the system experienced far more movement than the year-end count alone would suggest.
Transfers tell a similar story. Wendy’s disclosed 149 franchise transfers in 2023, followed by 312 transfers in 2024 and 113 in 2025.
Transfer activity is not inherently negative. Wendy’s openly describes a System Optimization strategy intended to move restaurants between operators and strengthen the franchise base. Its FDD also describes a “Franchise Flip” program under which Wendy’s personnel may assist with valuation, deal oversight, and transition management when restaurants are transferred from one franchisee to another.
But that is exactly why Item 20 deserves more attention than it usually receives. A system can appear relatively stable when measured solely by its December 31 restaurant count while substantial numbers of stores are closing, being reacquired, transferring to new owners, or otherwise changing hands underneath that total.
Unit count tells you how many restaurants exist.
It does not necessarily tell you what is happening to the people who own them.
Meritage Was Reporting Its Own Version of the Same Problem
Because Meritage publishes financial information, we can see something that prospective franchisees rarely get to see: how a major franchise operator was experiencing the brand’s economics from its side of the relationship.
Its 2025 financial statements said operating losses and negative cash flows had created liquidity problems severe enough that it could not meet certain obligations as they came due. Meritage disclosed defaults with both its lender and its franchisor and acknowledged substantial doubt about its ability to continue as a going concern. It was seeking cost reductions, franchisor fee relief, changes to development and reimaging requirements, lender concessions, and portfolio optimization at the same time.
The company’s September Chapter 11 announcement went even further in connecting its financial condition to the broader Wendy’s system. Meritage said the filing followed “sustained system-wide headwinds affecting the broader Wendy’s brand” and explained that because the substantial majority of its portfolio operates under the Wendy’s brand, those pressures had significantly affected the company’s financial position. Meritage also said it had spent more than a year working with its lenders and franchisor before deciding to pursue a court-supervised restructuring.
Those are Meritage’s statements about its own circumstances. They do not establish that Wendy’s caused the bankruptcy, nor do they eliminate the role of Meritage’s own debt, leases, acquisitions, capital structure, operational decisions, or management.
They do, however, make it difficult to treat this bankruptcy purely as an isolated franchisee failure.
Wendy’s Was Facing Broader System Pressure
Meritage’s deterioration also occurred during a difficult period for the Wendy’s U.S. system.
For full-year 2025, Wendy’s reported a 5.6% decline in U.S. same-restaurant sales and a 5.2% decline in U.S. systemwide sales. The weakness continued into 2026. For the second quarter ended June 28, Wendy’s reported that U.S. same-restaurant sales fell another 7.0%, while U.S. systemwide sales declined 8.2% compared with the prior-year quarter.
Wendy’s SEC filing attributed the same-restaurant sales decline primarily to decreased traffic, partially offset by a higher average check. It also reported pressure on U.S. segment profit from higher company-store cost of sales, advertising-fund expenses, and higher franchise-support and other costs.
Again, none of those statistics establishes a direct causal path from Wendy’s systemwide performance to Meritage’s Chapter 11 filing. But they provide important context. Meritage was not restructuring hundreds of Wendy’s restaurants during a period of strong domestic same-store growth. It was doing so while the broader U.S. brand was also experiencing substantial sales and traffic pressure.
That distinction matters because of the way franchise risk is normally evaluated. The franchisee owns the local business, employs the workers, carries its own debt, signs leases, and makes countless operating decisions. At the same time, the franchisee does not independently control the national brand, systemwide marketing, menu strategy, pricing architecture, promotional strategy, or many other variables capable of influencing customer traffic.
Franchising divides ownership and control in ways that can become especially visible when a system comes under pressure.
What Could a Prospective Franchisee Have Known?
This may be the most useful question in the entire Meritage bankruptcy.
Imagine evaluating Wendy’s during the spring of 2026, months before the Chapter 11 filing. A prospective franchisee could have opened Item 19 and seen nearly $2 million in average sales among qualifying franchised restaurants and more than $2.2 million among company restaurants. Those are meaningful sales volumes.
But a multi-year comparison of Item 19 would also have shown that company-store EBITDA before rent was falling much faster than sales.
Item 20 would have shown a net contraction in franchised restaurants during 2024, substantial closure and reacquisition activity in 2025, and hundreds of transfers across the preceding three years.
Then there was Exhibit R. A deeper review of Wendy’s May 2026 amended FDD would have revealed multiple current-year closures associated with entities belonging to one of the brand’s largest operators. Those entity names would not mean much to a buyer who simply skimmed the document, but the information was there.
Going outside the FDD would have revealed even more. Meritage had publicly disclosed operating losses, negative cash flow, defaults under its lending and franchise agreements, an inability to pay certain obligations as they came due, franchisor fee relief, lender forbearance, portfolio optimization, and substantial doubt about its ability to remain a going concern.
None of those facts individually answers the question of whether someone should or should not invest in a Wendy’s franchise. That is not the purpose of due diligence.
Their value is that they change the questions a buyer should be asking.
Why was one of the brand’s largest operators closing restaurants? Why had it defaulted on obligations to the franchisor? What was happening to restaurant-level margins? Why had transfer activity increased so substantially in 2024? How many franchisees were experiencing similar pressure? Were the problems specific to Meritage’s leverage and capital structure, or were other franchisees experiencing comparable traffic and margin pressures?
Those questions become much easier to ask before writing the check than after signing the franchise agreement.
The Bankruptcy Filing Made the Problem Impossible to Miss
On September 17, Meritage and numerous affiliated entities entered Chapter 11. The debtor list includes Wen Carolinas, Wen Georgia, Wen Ohio, Wen Oklahoma, Wen South, Wen Tennessee, and Wen Virginia, the same operating entities that appear throughout Wendy’s franchise disclosures.
Meritage says it plans to continue operating its restaurants during the restructuring and has expressed confidence that Wendy’s can achieve a brand turnaround. Its approximately 9,000 employees are expected to continue being paid, subject to the bankruptcy court’s approval of customary first-day relief.
The financial picture is still incomplete. The court’s Notice of Filings Due gives Meritage until October 1, 2026 to file several of the core bankruptcy documents, including its schedules of assets and liabilities, Statement of Financial Affairs, and summary of assets and liabilities. Those filings may provide considerably more detail about the $24.9 million in deferred franchisor fees and Meritage’s obligations to lenders, landlords, vendors, and other creditors.
For now, however, one thing is already clear.
The bankruptcy filing did not create the warning signs. It simply collected them under one case number.
The Reality Check
Franchise buyers are regularly told to review Item 19, examine Item 21, study the franchise agreement, and talk with current and former franchisees. All of those steps matter. But the Meritage bankruptcy demonstrates why none of them should be performed in isolation.
One of Wendy’s largest franchise operators was experiencing serious financial distress while Wendy’s remained an active franchise system offering and selling franchises. That distress did not appear in one neat paragraph labeled “One of Our Largest Franchisees Is Struggling.” Instead, pieces of the story appeared in different places.
Item 19 showed weakening restaurant-level profitability at company-operated restaurants. Item 20 showed substantial movement among franchised outlets. Exhibit R identified current-year closures, including numerous locations operated by Meritage entities. Meritage’s own financial reports disclosed defaults, fee relief, lender forbearance, liquidity problems, and a going-concern warning. The broader Wendy’s corporate disclosures showed deteriorating U.S. same-restaurant sales.
Now the bankruptcy record adds another piece: $24.9 million owed to the franchisor and identified as “Franchisor Deferred Fees.”
A prospective franchisee looking primarily at average sales could have seen a system where qualifying franchised restaurants averaged nearly $2 million annually.
A prospective franchisee who kept digging could also have seen restaurant-level margins moving in the wrong direction, significant movement inside Item 20, a growing list of closures, and one of the brand’s largest operators publicly reporting defaults and financial distress.
Both pictures existed at the same time.
That is why reading the FDD is only the beginning of due diligence.
The information that matters most is sometimes scattered across Item 19, Item 20, a closure exhibit, a corporate filing, and a bankruptcy docket. The work is in learning how to connect them.
