Needing cash, restaurant companies tap their banks

Several companies have drawn down on revolving credit lines as they seek to build up cash to get through a rough period.
Photograph by Jonathan Maze

Facing a couple of months with just a fraction of their normal sales, restaurant companies have tapped their credit lines to get them through until summer.

As sales began falling last week, borrowers began drawing down on revolving credit lines so they could have the cash available even before they need it. And several full-service restaurant chains announced their decisions to draw down on credit lines this week.

“They’d rather have that cash on the balance sheet rather than sitting with the bank,” said Jordan Myers, attorney with Atlanta-based law firm Alston & Bird.

Companies have revolving credit lines to help provide working capital during lean periods. By drawing them down now, before their finances show the full impact of the sales declines, the corporations can get the cash without tripping any financial covenants.

Many restaurant companies may not have been able to access those credit lines later if their sales declines lead them to breach their financial covenants, so they’re taking out the cash now.

Darden Restaurants, Bloomin’ Brands, Texas Roadhouse, Denny’s and Dine Brands Global are among the restaurant companies that drew down on revolving credit lines this week.

The restaurants are tapping their credit lines as they hoard cash for a potentially long spring with little or even no sales. As states close dining areas, and customers simply stay home, full-service chains in particular have lost most of their business.

Olive Garden owner Darden Restaurants, for instance, watched its same-store sales plummet from 3% growth at its casual-dining chains in the last week of February to down 60% this past week.

Darden this week said that it would borrow all $750 million in its revolving credit line. That will give the company $1 billion in cash to get through the coming months.

A same-store sales decline of 50% for the company’s current quarter would result in negative operating cash flow of $300 million, the company said this week. That $1 billion in cash, therefore, should be enough to get Darden through this difficult period.

Still, it shows just how difficult this time will be for a lot of companies. While a restaurant company can shut its doors and furlough its workers, it still has bills to pay during any shutdown.

Dine Brands, which operates Applebee’s and IHOP, tapped $220 million, even though it had “no immediate need” for the cash. It drew down on the revolver to improve “long-term financial flexibility.”

Many companies stopped paying out dividends or buying back shares to hoard cash. Denny’s stopped buying stock early this week, when it tapped its own credit line to improve its cash position.

Texas Roadhouse has taken out $190 million under its line of credit. The Louisville, Ky.-based casual-dining chain says it has $300 million in cash on hand and an option to increase its credit facility by another $200 million.

Bloomin’ Brands, the owner of Outback Steakhouse and Carrabba’s, said that is is drawing down just about all of the $381 million available on its credit facility to bolster its cash position. That gives it more than $400 million in cash on its balance sheet.

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