B. Riley Financial (NASDAQ:RILY) shares are trading lower Monday after the company announced it expects to record a combined impairment of approximately $120 million due to its investments in Franchise Group.

What To Know: 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, which sent shares of B. Riley tumbling on Monday, according to Reuters.

B. Riley also said Monday that it may have to record another $120 million impairment due to its investments and loans tied to Franchise Group. The report indicates that the company previously warned of potential losses for the quarter ending June 30 citing markdowns related to the retailer.

In a memo to staff, co-CEO Bryant Riley said he felt "personally sick" and noted that this was not the outcome the company had envisioned when it backed a management-led takeover of Franchise Group last year.

"I hate that B. Riley has, for now, been distilled by many outside the firm into a single investment," Riley said on Monday. "There will likely be no equity recovery for all the constituents that participated."

Franchise Group was already facing scrutiny from regulators due to financial and operational challenges. In July, B. Riley and its CEO were subpoenaed by the SEC over their involvement with Franchise Group's former CEO, Brian Kahn. However, an internal review cleared B. Riley of any misconduct, per Reuters.

B. Riley's shares have still seen significant declines year-to-date, down about 76% since the start of the year. Reuters reported that B. Riley has sought to strengthen its balance sheet and put an end to stock declines by divesting non-core units.

RILY Price Action: B. Riley Financial shares were down 13.7% at $4.92 at the time of writing, according to Benzinga Pro.

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