Dunkin Brands Growth Plan Has Holes

The New York Post reported today that Dunkin’ Brands is moving forward with its plan to open hundreds of stores this year to meet growth targets, despite a rash of franchisee bankruptcies and dried-up restaurant financing. The article explains:

One reason for the urgency: Dunkin’ Donuts, owned by private-equity firms Carlyle Group, THL Partners and Bain Capital, needs to meet certain financial targets, including new-store openings, to extend $1.5 billion in debt coming due in the next two years.

Although the company says that they have already hit the new-store target for 2011, and expects to remain there by the time the loan comes due, one source stated that Dunkin’ has fallen slightly behind on its store schedule but believes it will get back on track by picking up the pace again later this year. The source said, “The next year is key for Dunkin’.

Dunkin’ franchisees are feeling the pinch and four operators have filed for bankruptcy since June.

Not only is the bad economy and lack of financing making it hard for the network, but also the situation with CIT, a long-time commercial lender to Dunkin’ franchisees.

In May, the Zale family, which owns the Zales jewelry-store chain and is one of the lead players in Dunkin’ Donuts expansion into Texas, abandoned plans to open 70 stores. The Zales opened four stores when they lost their financing, leading them to sell their franchise territory back to the company for an undisclosed amount. 

But the article further reports:

Dunkin’ brought in an expensive leveraged buyout in 2006, borrowed $1.5 billion through a market securitization handled by Lehman Brothers that was designed to push expansion far beyond its base in the Northeast.

Although the debt comes due in 2011, Dunkin’ can extend repayment up to two years, if it meets certain thresholds, including a set number of new-store openings.

DUNKIN'S BROUHAHA - New York Post