Lender Equity Rules Hurt Franchisee Demand

The Star:

Yum Brands Inc., the operator of the KFC, Taco Bell and Pizza Hut fast-food chains, says tight lending standards have made it difficult to sell large groups of company-owned restaurants to franchisees.

Yum chief financial officer Richard Carucci said yesterday during the company’s earnings call with analysts that lenders are requiring 35 per cent equity or more on larger deals. That compares with the 25-plus per cent traditionally required.

“The banks are requiring 35-plus equity to lend, and it’s hard for the buyers in some cases to make that work,” Carucci said.

“On the small deals we’re able to still make that work, because people have equity in their existing business,” he said.

Selling restaurants can reduce company sales but improve profit margins if the company collects more franchise fees without having to operate restaurants.


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