Franchisees ask for new loan terms to tap into rescue fund

U.S. businesses struggling to survive in the wake of the coronavirus outbreak are looking to change the terms of their loan documents, so they can take advantage of a special government program designed to help small businesses in distress.

Carrols Restaurant Group and Dhanani Group, two of the largest franchise restaurant operators in the United States, are among the companies that have hired lawyers and lenders to assess changes to loan documents, according to people with direct knowledge of the loan documents. discussions.

The two are looking to exploit the Paycheck Protection Program, a $ 349 billion state bailout fund that ran out of funding Thursday morning as Congress remained stuck in negotiations to add $ 250 billion. Experts have warned that even that extra money may not be enough for the thousands of businesses and entrepreneurs in the queue, some of whom have been trying to access the program since its launch on April 3.

Dhanani and Carrols are looking for additional flexibility, residents said, as they have existing loans that mature in 2025 and 2026, respectively, and prohibit any new borrowing that matures earlier. Such restrictions are common in transactions where the borrower is already heavily indebted, as the new debt would effectively have priority, to the detriment of existing lenders.

The PPP offers companies affected by the coronavirus 10 weeks of payroll costs, up to $ 10 million. Funds are amortized over a matter of months if businesses can prove that they spent them on qualifying expenses such as staff and rent. But if they can’t, the amount becomes a two-year loan – which would be prohibited under Carrols and Dhanani’s current facilities.

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Loan modifications considered by companies should not face opposition from lenders, as PPP loans are forgivable. Plus, the money could be a lifeline for restaurants to stay open.

“This is something we have had to work on with issuers,” said a banker involved in discussions to modify loans. “It’s complicated but it shouldn’t be controversial.

Lawyers and analysts said other changes were also discussed in conversations with other companies. Loan documents may contain restrictions on the dollar amount of additional debt that can be incurred, for example, or could limit a company’s debt-to-earnings ratio.

“We have started to see the proposed changes come to fruition,” said Jessica Reiss, head of US leveraged loan research at Covenant Review. “I think we’ll see more.”

Carrols and Dhanani are both relatively large companies, but special arrangements have been made under the PPP for restaurant franchises, which have been hit hard by virus lockdowns. Therefore, franchises with up to 500 employees per location – rather than 500 employees in total – are eligible for funds.

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Carrols operates more than 1,000 Burger King restaurants, making it the brand’s largest US franchisee. Even before the coronavirus outbreak, the Syracuse, New York-based company was under pressure, reporting a net loss of $ 32 million last year, including $ 29 million in costs of interests.

Carrols said in a statement to the Financial Times that he has taken steps to increase his existing bank lending facilities as well as to research other options “including whether we qualify for the newly announced government programs that were designed exactly for this. help keep US businesses open and our team members working.

Private company Dhanani, based near Houston, Texas, operates around 850 restaurants, including Popeyes and Burger King. S&P Global, which has an undesirable credit rating on the company, forecast last week that its like-for-like sales would fall by a “double-digit” percentage in the current fiscal year.

Dhanani did not respond to a request for comment.

Additional reporting by Laura Noonan and James Fontanella-Khan

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