NEW YORK —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
With federal lawmakers working on a $700 billion bailout of the financial services industry at press time—following the bankruptcy of investment bank Lehman Brothers, the merger of Bank of America and Merrill Lynch, and the rescue of insurance giant AIG—the health of the nation’s largest financial institutions remained a moving target. —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
Several restaurant companies, including Darden Restaurants Inc., Dunkin’ Brands Inc., Sonic Corp. and the former IHOP Corp., had relationships with Lehman Brothers, either through Lehman’s work on the securitization of future franchise royalties or through lending arrangements. The status of some of those dealings is uncertain. —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
American International Group Inc., or AIG, has a franchise finance division that provided lending and business services to many restaurant clients, and those relationships could be in flux as well. —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
While poised to absorb Merrill Lynch, Bank of America allegedly declined to extend additional credit to McDonald’s franchisees seeking financing for such upgrades as new equipment for the chain’s espresso-based beverages. The franchisor warned franchisees they needed to find alternative financing, according to a Sept. 22 Bloomberg News report that cited an internal memo. McDonald’s Corp. would not confirm the memo’s authenticity. —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
McDonald’s spokesman Walt Riker told Nation’s Restaurant News the chain and its franchisees have “strong and ready access to cash.” —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
Bank of America could not be reached for comment at press time. —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
Industrywide, the nation’s financial crisis could take a toll on consumer psyches as job losses grow and confidence is shaken, further curbing dining-out spending amid already soft restaurant traffic, analysts warned. —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
Pending the completion of wrangling between the Bush administration and Congress over the Wall Street bailout plan, financing sources the restaurant industry relies on for growth capital, debt refinancing and deal funding essentially are frozen. Banks have been forced to shore up balance sheets clogged with mortgage-related debt and are unable or unwilling to lend money to businesses. —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
“Credit is the lifeblood of the economy,” said Paul Kasriel, director of economic research at Northern Trust Corp., a Chicago-based asset management firm. “We’re going to have very sluggish economic activity until the financial system rebuilds its capital.” —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
Darden officials said Lehman was part of a credit syndicate backing about $50 million of the restaurant company’s $700 million credit line. That relatively minimal exposure to Lehman assets will not be an issue, Darden said, as other lenders can bridge the gap if necessary. Darden also said it does not expect to tap the entire facility. —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
Privately held Dunkin’ Brands, which used Lehman to close a $1.7 billion securitization of royalty assets that helped fund the $2.4 billion buyout of Dunkin’ by three private-equity firms in 2006, said its financial dealings are confidential, and it would not comment on any relationship with Lehman. —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
“We are not making any changes to our short-term plans as a result of this news,” said Stephen J. Caldeira, Dunkin’s spokesman. “Despite the current economic climate, we remain committed to the steady and strategic expansion of our brands both domestically and internationally.” —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
Sonic used Lehman to help fund the company’s $560 million Dutch-auction tender offer to shareholders in 2006, through a $775 million credit facility arranged by Lehman and Banc of America Securities. When Sonic refinanced the facility in December 2006, Lehman became, and remains, a participant in Sonic’s variable funding note, chief financial officer Stephen Vaughan said. —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
“Information is still becoming available,” he said, referring to the future of Lehman’s assets and certain divisions. “But we at this point don’t believe [Lehman’s restructuring] will have any impact on our ability to access funds.” —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
Sonic holds about $30 million in cash, and “feels very good about its options” from a liquidity standpoint, Vaughan said. —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
Any financing that used asset-backed securitizations of future royalty revenues, which Lehman completed for many restaurant companies, were typically packaged and sold to a syndicate of investors through public debt, sources said. Any revolving lending arrangements with Lehman, however, could be in jeopardy. —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
“If there are loans that have been made to restaurant companies that were on a revolving basis, or if there are any arrangements for periodic funding, they will…be re-evaluated,” said Dick Rudder, a partner at the law firm Baker & McKenzie LLP who specializes in financing and has worked with Lehman. “Any arrangements that have too much risk or not enough collateral, [Lehman or its new owners] may look for escape hatches.” —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
Rudder also noted that because Lehman had a virtual lock on asset-backed securitizations, those types of deals—used in the Dunkin’ buyout and for IHOP Corp. to purchase Applebee’s International Inc., for example—will not be forthcoming, even though they were successful and provided cheap financing. —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
“There won’t be for quite some time any more big deals like Dunkin’,” Rudder said. “And there won’t be for at least some shorter period of time any smaller deals, either. Raising capital is much too difficult and expensive.” —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
Operators not seeking billion-dollar deals, but needing financing for remodels, new development or to refinance debt also will find middle-market credit tight. —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
AIG Franchise Finance, a division of AIG, could be in a state of flux, depending on what happens to the parent company as the federal government takes control. AIG Franchise Finance typically lends sums between $10 million and $100 million and offers both fixed- and floating-rate pricing as well as sale-leaseback financing to multi-unit restaurant franchisees or franchisors. Principals at AIG Franchise Finance did not respond to requests for comment. —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
A list of 10 recently completed deals on AIG’s website includes $6.3 million to an Applebee’s franchisee for new-unit development, a $15 million revolver and term loan to a Burger King franchisee, and $3.8 million in acquisition financing to an Arby’s franchisee. —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
Other lenders, like GE Capital Solutions Franchise Finance, the largest such lender to restaurants, could be expected to fill voids left by AIG. Private-equity firms, hedge funds or sale-leaseback deals also would be sources of liquidity for restaurants seeking capital. —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
Jamba Inc., for example, terminated its credit facility with Wells Fargo Foothill LLC and inked a $25 million financing pact with Victory Park Capital Advisors LLC. The deal provided “greater financial flexibility,” Jamba said. —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
Ruth’s Hospitality Group Inc. just closed on a $17.5 million sale-leaseback transaction with Sovereign Investment Co., and proceeds were used to reduce Ruth’s outstanding debt, it said. —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
Amid the credit freeze created by Wall Street’s woes, there is uncertainty about the level of angst consumers are likely to feel over bank failures and government rescue plans. Job losses are all but guaranteed in New York, the nexus of Wall Street’s troubles, but as the fallout spreads to other industries or regions, job losses may become more widespread, sources said. —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
“An overriding concern right now is jobs, jobs, jobs,” said restaurant securities analyst Stephen Anderson at MKM Partners. “Nationwide, jobless claims are over 400,000 per week, and that’s a recessionary signal.” —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
Pundits have said unemployment, which hit 6.1 percent in August, could grow as high as 7 percent in coming months. —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
Anderson, like other analysts, had pointed to positive signs for the restaurant industry in recent weeks, like the stabilization of commodity costs and a drop in gas prices. But the latest news from Wall Street could dampen plans for a reversal of gloomy trends. “Unless the job picture brightens considerably, I would be hard-pressed to find a [quick] recovery,” he said. —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
Meanwhile, the housing market still is seen as needing a boost before consumers will lead an economic recovery. Before the government intervened at AIG and elsewhere, it took over mortgage giants Fannie Mae and Freddie Mac. Mortgage rates dropped almost immediately, a positive for the housing market. However, as lending tightens again, the nation’s housing woes may not easily be relieved. —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
“I do not believe the [Fannie and Freddie] bailout will have much, if any, impact on the restaurant industry,” said Don Walker, chief financial officer at Frisch’s Restaurants Inc., operator of Big Boy and Golden Corral restaurants in hard-hit Ohio, Kentucky and Indiana. “The market reaction…indicates that there was an initial sigh of relief, followed by the realization that the housing crisis hasn’t been resolved even with the bailout.” —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
Many predictions for an economic recovery have ruled out any upswing this year, and have targeted the second half of 2009 as the beginning of a turnaround. —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
As for whether fear among consumers, lenders and others could create more problems than the actual bankruptcies and bailouts, Andrew F. Puzder, chief executive of CKE Restaurants Inc., told investors in a Sept. 18 conference call to “stay calm out there.” —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
“This isn’t the end of the world,” Puzder said, “and I’m talking about the financial markets, particularly you people from New York. Stay calm.” —Wall Street’s woes are weighing on Main Street’s restaurants as access to capital freezes, and anticipated job losses and increased fears could force consumers to further rein in spending, say restaurant executives, economists and financiers.
