The Next Big Short: Restaurant Chains

by Tyler Durden
03/08/2011 09:08 -0500

UBS' Andy Lees reminds all those who forgot the carnage in restaurant stocks in the spring/summer of 2008 when oil hit $150, crushing food margins and causing patron visits to plunge due to the $5 gas prices, that the next carnage (once the market starts trading back with some fundamentals) will be in... restaurant stocks.

FTI consulting suggests that it is not just the emerging market countries being squeezed by food inflation, but also a lot of the smaller US food chains. Last year restaurant chains such as Uno Chicago Grill pizza, Fuddruckers and Charlie Brown’s Steakhouse filed for bankruptcy. A lot of the smaller food chains apparently have large debt servicing costs and with cash flow being squeezed by higher input prices they are struggling to keep up payments. Larger companies with strong finances are not falling under these pressures. Sbarro Inc has been in standstill agreements with its lenders which prevent them from pushing the company into bankruptcy since the beginning of the year. It missed a debt target at the end of 2010 and an interest payment in February. It is just one of a handful of restaurant companies that S&P has on its watch list with ratings of CCC. Others on the list include El Pollo Loco 400 store Mexican restaurant chain, and Perkins and Marie Callender. Going into bankruptcy allows leases to be broken.

For all Wall Streeters who are sick of raping the middle class this is great news: soon one and all will be able to leave the shackles of the Bloomberg terminal behind and take over that defaulted lease on the resataurant down the block, getting the whole "I want to run a bar-restaurant" thing out of their system. ... ant-chains