What's Different About Restaurant Restructurings During COVID-19?

[...]of the pandemic, the industry's 2020 sales of $659 billion were only 73 percent of pre-pandemic projections. [...]it is reasonable to assume that lenders will continue to experience high levels of problematic credit in this industry.2 This article provides insight into the intricacies obse...

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Bibliographic Details
Published in:American Bankruptcy Institute journal 2021-08, Vol.40 (8), p.22-50
Main Author: McClary, Colin J
Format: Article
Language:English
Subjects:
Accounts payable
Agricultural commodities
Bankruptcy laws
Bankruptcy reorganization
Capital expenditures
Coronaviruses
COVID-19
Current liabilities
Employees
Food
Leases
Pandemics
REITs
Restaurants
Sales
Working capital
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Summary:[...]of the pandemic, the industry's 2020 sales of $659 billion were only 73 percent of pre-pandemic projections. [...]it is reasonable to assume that lenders will continue to experience high levels of problematic credit in this industry.2 This article provides insight into the intricacies observed in restructuring underperforming restaurant operators and focuses on the "top six restructuring issues" that are often seen in a restaurant workout. [...]in a § 363 or out-of-court sale, a buyer will require a seller to pay in full all employee expenses, along with key vendor and landlord liabilities that have accrued up to the date of closing for going-forward locations. [...]building styles are hard to transfer from brand to brand, limiting potential buyers. * Lease terms provide for the transfer of the building and leasehold improvements to the landlord, often at the end of the lease. * The net proceeds from selling FF&E can be limited by (1) an oversaturated restaurant equipment market due to pandemic-related restaurant closures; (2) a lack of uniform restaurant layouts throughout a chain, which can result in irregularly sized refrigerators, fryers, ovens, etc., which can be unappealing to bulk buyers; (3) costs due to removal and storage of restaurant equipment; and (4) substantial broker commissions and auction costs.
ISSN:1931-7522