Tag Archives: Restaurant

Bankrupt Restaurant Chains Are Handing Keys To Their Lenders

With few buyers willing to take a risk, credit bids become far more common in bankruptcy sales, says RB’s The Bottom Line.

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(Jonathan Maze) Last week, California Pizza Kitchen canceled its auction after no worthy bidders came forward to buy the casual-dining chain. The result: The company will likely end up in the hands of its lenders.

That came the same week that Ruby Tuesday started its bankruptcy process with a plan that hands the keys to the chain to its lenders.

Such deals are far from uncommon and totally understandable. But it’s indicative of the state of the business that once-venerable chains can’t even scrounge up bidders to help fuel bankruptcy auctions.

Indeed, several companies that have filed for bankruptcy since the pandemic have ended up sold in credit bids. CraftWorks, the owner of Logan’s Roadhouse and Old Chicago that declared bankruptcy before the pandemic, was sold through a credit bid in May. Aurify Brands acquired both Le Pain Quotidien and Mayson Kaiser by first acquiring the debt for the two brands and then using that to take over the company.

To get an idea of why this is happening now, we asked Petition, a journalist who covers corporate bankruptcies and restructuring, to get an idea of what’s going on.

“With too many restaurants per capita pre-pandemic and uncertainty about COVID-19 heading into winter, strategic buyers are scurrying to their foxholes to avoid the shakeout,” they said. “Existing lenders have no choice but to play out their option, hoping that less competition, strong digital adoption and execution, a slimmer balance sheet, a reduced footprint and focused management will bridge them to an industry comeback.”

To be sure, the companies above occupy some of the most challenging sectors or sub-sectors during the pandemic.

Both Le Pain Quotidien and Maison Kayser, for instance, are bakery-cafe concepts in urban areas. Those types of concepts face an uncertain future thanks to empty offices as consumers work from home, along with a potential flight of residents toward the suburbs.

Ruby Tuesday has been struggling and shrinking for more than a decade. It has closed nearly half of its units since 2017 and is less than a third of the size it was back in 2008. Bar and grill casual dining itself faces significant questions—TGI Fridays, once the leading casual-dining chain, is also shrinking.

California Pizza Kitchen is another casual-dining chain. But it was built around pizza. Consumers have shifted much of their pizza consumption to delivery, leaving full-service pizza concepts behind.

Buyers simply aren’t ready to take the plunge on those types of concepts. The business for dine-in sales is weak. It is also expected to remain weak for some time. That leaves the companies with little choice but to hand the keys to the lenders and walk away.

Any buyer of such chains will want that company reduced to only the most profitable locations. And they’re going to want that company for a considerably smaller price than the face value of the secured debt.

A lot of investors live to buy concepts through credit bids. They buy the secured debt on the secondary market, often for considerably discounted prices—lenders, believing they’ll be unlikely to get their money back and eager to get an unworkable loan off the books, will sometimes sell the debt at a discount.

Investors step in and buy the debt cheap. That can give them the inside track when a company ends up in bankruptcy. If a buyer willing to pay the face value of the debt emerges during an auction, the investor can make money based on the discount they paid for that debt. If not, they get the chain and can run it until the situation improves.

But such sales can often prolong the life of a chain that wouldn’t survive on its own, extending the life of “zombie” chains that aren’t growing and aren’t innovating and simply exist. The pandemic, of course, is creating zombies in all sorts of industries. Restaurant chains included.

Source: by Jonathan Maze | Restaurant Business 

U.S. Restaurant Spending Almost Back To Pre-COVID Levels

Something odd happened to the US economy in the past two months as many in the media, the political establishment and even various Fed hacks (recall on August 3 Neel Kashkari Saying Only Way To “Save Economy” Is To Lock It Down “Really Hard” For 6 Weeks), were feverishly counting the daily new US covid cases and warning that only a new shutdown could spare the US from imminent disaster: it has almost fully reopened and according to real-time indicators, it is now recovering at a far faster pace than most had expected (as the Fed’s latest economic projections confirmed).

And nowhere is this more visible than in the US restaurant space where with various exceptions – most notably across Manhattan where policy seems to change on a daily if not hourly basis – spending appears to be almost back to pre-covid levels.

In an analysis conducted by BofA analysts looking at daily restaurant trends through September 26th, the Bank of America aggregated credit and debit data showed national restaurant spending improving another 1.7% to down 8% (for the seven days ended September 26th) from a down 9% (from the week prior). While the BofA analysts note that performance on weekends continues to lag weekdays by about 1%-2%, the trend is clear: we are almost back to normalcy.

RIP

Source: ZeroHedge

 

 

Smaller Restaurants Forced Into Bankruptcy As Foot Traffic Collapses

While the big names in eating out – McDonald’s, Popeye’s, Chick-Fil-A and Olive Garden, to name a few – are all working diligently to get customers through the door at a time when the American eater is staying home more, lesser known restaurants are bearing the brunt of not being able to find new customers.

Names like Bar Louie and American Blue Ribbon Holdings, which owns Village Inn and Bakers Square, both filed for bankruptcy earlier this week, according to Bloomberg. Both cited lower foot traffic in the U.S. as the reason for their downfall. 

Michael Halen a senior restaurant analyst at Bloomberg, said: “The business is just over-built, especially casual dining and full-service dining. There are too many restaurants.”

American Blue Ribbon also said that competition, rising labor costs and unprofitable restaurants were all reasons for facilitating its bankruptcy. The company owns and operates 97 restaurants after closing 33 stores prior to filing Chapter 11. 

The company’s majority owner, Cannae Holdings, Inc., has agreed to provide a $20 million loan to maintain the company during bankruptcy. Cannae generates about 30% of its revenue from various restaurant companies it is invested in and has said that American Blue Ribbon will focus on strategic options in bankruptcy. 

Bar Louie has been opening new locations over the last few years which has grown its top line, but the increase in debt necessary to open new stores has suffocated the company. 

Chief Restructuring Officer Howard Meitiner said: “This inconsistent brand experience, coupled with increased competition and the general decline in customer traffic visiting traditional shopping locations and malls, resulted in less traffic at the company’s locations proximate to shopping locations and malls.”

Bar Louie has 110 locations, 38 of which have “seen their sales and profits decline at an accelerating pace” since the company began a strategic review in 2018. Those locations expected a staggering same store sales drop of 10.9% in 2019 and were closed prior to the company filing for bankruptcy. Lenders are providing a loan of as much as $22 million to keep the company operating during the proceedings.  

Other restaurant names like The Krystal Co., Houlihan’s Restaurants Inc., Kona Grill Inc. and Perkins & Marie Callender’s all filed for bankruptcy last year as well. 

Halen concluded: “We need to see a correction in the restaurant industry. We’ve seen a lot in the last few months, and I think this is just the beginning. Once the economy softens, you’ll see this getting worse.”

Source: ZeroHedge