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Restructuring

Covid-19 Adds to Restaurant Industry Woes

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Published: June 22nd, 2020
The effects of the novel coronavirus on the restaurant industry could lead to 15% of all restaurants closing permanently.

Many restaurant chains had been struggling with a shift away from casual dining, but fallout from the coronavirus pandemic will soon push more struggling chains across the sector to file for Chapter 11 protection, bankruptcy and restructuring advisers say.

“Many restaurants that were struggling before the pandemic will go under,” restaurant consultant Aaron Allen of Aaron Allen & Associates LLC said. “I think 10% to 15% of all restaurants in the U.S. will permanently close.”

The National Restaurant Association in a Thursday, April 9, statement to congressional leaders seeking more financial relief for the sector asserted that 3 million restaurant employees had already lost their jobs and the industry had lost $25 billion in revenue since March 1. The association, mirroring Allen’s comments, expected 15% of all restaurants to close permanently within two weeks.

Those filing for bankruptcy will range from small independents to publicly traded chains and private equity portfolio holdings. If a restaurant chain was having financial difficulties in the months before the pandemic, it might file for Chapter 11 seeking a sale of its assets as a going concern. Mature brands that were in decline before the Covid-19 crisis that investors believe may not recover and would have difficulty finding a buyer, though, might need to liquidate.

Concepts that will have the most problems range from fine dining to casual, family and fast-casual dining. Chains to keep an eye on include NRD Capital Management LLC’s Ruby Tuesday Inc. and Legendary Restaurant Brands LLC’s revived Bennigan’s, Allen said.

NRD and Legendary did not immediately return requests for comment.

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