Debt relative to earnings among companies in the Russell 2000 Restaurants Index is now near the highest on record, according to Bloomberg.
Rob Hunziker, whose company Advanced Restaurant Sales provides brokerage services to the industry, said: "The debt has been so cheap the last four or five years. Now cash flows are starting to decline, and that debt is getting scary looking. There's a problem, and it's getting worse."
NPC International, the world's biggest operator of Pizza Hut franchises, saw its loans fall to distressed levels in August after quarterly results showed the company inching closer to breaching some of its debt covenants.
The company's credit line prevents it from expanding if its debt exceeds 4.75x annual EBITDA. This compares to a loan the company took out in 2012, when their limit was 6x EBITDA. SunTrust Robinson Humphrey analyst Jake Bartlett doesn't see an issue, however.
In some cases, companies took on debt to make payouts to shareholders.
Taco Bell, Dunkin Brands, Domino's and Jack in the Box have all tapped the market for "Whole-business securitizations", a type of debt that allows companies to issue bonds backed by franchise fees and intellectual property.
S&P projects the company's debt to EBITDA to move above 7x next year.
https://www.zerohedge.com/personal-finance/restaurant-industry-saddled-debt-and-facing-reckoning
Rob Hunziker, whose company Advanced Restaurant Sales provides brokerage services to the industry, said: "The debt has been so cheap the last four or five years. Now cash flows are starting to decline, and that debt is getting scary looking. There's a problem, and it's getting worse."
NPC International, the world's biggest operator of Pizza Hut franchises, saw its loans fall to distressed levels in August after quarterly results showed the company inching closer to breaching some of its debt covenants.
The company's credit line prevents it from expanding if its debt exceeds 4.75x annual EBITDA. This compares to a loan the company took out in 2012, when their limit was 6x EBITDA. SunTrust Robinson Humphrey analyst Jake Bartlett doesn't see an issue, however.
In some cases, companies took on debt to make payouts to shareholders.
Taco Bell, Dunkin Brands, Domino's and Jack in the Box have all tapped the market for "Whole-business securitizations", a type of debt that allows companies to issue bonds backed by franchise fees and intellectual property.
S&P projects the company's debt to EBITDA to move above 7x next year.
https://www.zerohedge.com/personal-finance/restaurant-industry-saddled-debt-and-facing-reckoning
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