Restaurant Industry Financing Issues

So far this week we have learned that Bank of America and GE Capital will limit new loans to franchisees. We have already articulated how this might impact the MCD franchisee community, but there are others that are clearly impacted too.

The companies that are likely impacted the most are YUM, MCD, SONC and JBX and CKR. Outside of MCD, these companies are all in the process of pursuing rather aggressive refranchising programs. In reference to its goal to reduce U.S. company ownership to below 10% by the end of 2010, YUM management said, “Obviously the credit market conditions have affected refranchising efforts, and as a result the credit markets have increased their equity requirements for the buyer. Additionally, lenders have intensified their review process, which has added time to complete certain larger transactions. In this environment, therefore, it has become more difficult to complete larger deals, so we expect our transactions this year to be skewed towards smaller deals.” And, this comment was made before this week’s announcements regarding Bank of America and GE Capital. Unfortunately, nobody is immune in this environment.