CEC Entertainment, the owner of Chuck E. Cheese, looked to sell $660 million in high-yield bonds to refinance $650 million in debt that comes due next year.
The sale should not have been a problem. While the company filed for bankruptcy in 2020, it has long since emerged from the filing and has been investing heavily in the business.
According to Moody’s Investors Service, the bonds would increase interest expense and could put some pressure on its interest coverage. But the bond rating agency also said that CEC’s operating and credit metrics are expected to improve this year, thanks to the completion of a remodel project, and that the company has “very strong margins” compared with other restaurants.
That apparently hasn’t helped it win over bond investors. According to Bloomberg, CEC’s bankers, JPMorgan Chase and Goldman Sachs, have been unable to drum up enough interest from investors. The key point from the story: The difficulties were due to market concerns about the potential impact of the Trump administration’s tariff policies, as well as the overall state of the economy.
The performance of the sector in which CEC operates probably isn’t helping much. CEC owns Chuck E. Cheese and Peter Piper’s Pizza, both of which operate in the so-called eatertainment sector that’s faced broad-scale issues over the past couple of years.
To wit: The bocce-and-bowling concept Pinstripes was delisted just one year after it went public. TopGolf Callaway Brands is looking to spin off Topgolf just a couple of years after taking the company’s name. It also just laid off workers. The CEO of Dave & Buster’s just left the company as its sales tanked. All that is just in the past few months.
To get just a taste of investor sentiment: Dave & Buster’s stock is down 40% this year. It is down 72% over the past 12 months. We would certainly not lay full blame for whatever issues CEC is having with bond investors purely on economic uncertainty or Trump administration tariffs.
That said, the idea that the economic environment is creating problems for companies looking to deploy traditional methods for borrowing money is perhaps one of the more disconcerting things we’ve heard during a 2025 that’s been full of them.
The administration has already imposed 25% tariffs on imports from Canada and Mexico, plus a 10% import tax on Chinese goods, which is expected to drive up costs for all kinds of things, from Mexican tequila to restaurant equipment. The administration is threatening more reciprocal tariffs on other countries on Wednesday.
All that is coming amid declining consumer sentiment. The Consumer Confidence Index last week fell to its lowest level since 2022, according to the Conference Board.
Add it all up, and there is growing fear that the economy could hit a recession. Goldman Sachs recently raised its expectation for a recession to 35% from 20%.
To be sure, it wasn’t all that long ago that such expectations of a recession were in the 100% range and it never happened, so take any such prognostications with an industrial-sized grain of salt. But investors are clearly fearful enough of the prospect of economic pain creating problems for restaurant chains. And according to Bloomberg, investors have been pushing back against companies with any perceived exposure to a decline in consumer discretionary spending.
Much of the restaurant industry is definitely exposed to a dip in discretionary spending.
The restaurant industry over the past couple of years has also proven to be a tough investment. The casual-dining chain TGI Fridays lost control of most of its assets under obscure rules connected with its whole business securitization. Hooters of America, which also has a securitization, is apparently close to a bankruptcy filing of its own.
Numerous bankruptcies over the past year-plus have also left investors in a lurch. As did several non-bankruptcies, such as the one involving MOD Pizza.
All of which is making the environment just that much tougher for companies looking to access the financing market. And that could be brutal news for much of the industry.