Stressed Franchisors Turn to New Lenders

The financially weakest of franchise chains are being forced to find alternative capital, often paying considerably higher fees. These are franchisors such as Mrs. Fields, who just exited bankruptcy, or Metromedia Restaurant Group (Ponderosa, Bonanza Steak Houses and former franchisor of Bennigan's), who is seeking debtor-in-possession financing.

Mrs. Fields, a Salt Lake City-based bakery franchisor, turned to its investors for a debt-to-equity swap in order to emerge from Chapter 11 bankruptcy protection last week. After being turned away from various banks or offered unfavorable terms, the company decided to turn to its debtholders, including Capricorn Management, a private equity firm with a 12.5% stake in the company. "There were very few options on the table [for exit financing]," said John Lauck, interim co-ceo. "The terms were steep and reflective of the current cost..." - [via Credit Investment News]

High interest payments were among the chief reasons that Mrs. Fields was forced into bankruptcy last year.