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alstry (35.03)

More SHUTTING DOWN????

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June 04, 2008 – Comments (1)

From the WSJ:

The owner of national casual-dining chains Bennigan's, Ponderosa and Steak and Ale is in talks with its major lender GE Capital Solutions in an effort to stave off a possible bankruptcy filing ...

Earlier this year, the parent companies of the Bakers Square, Village Inn and Old Country Buffet filed for Chapter 11 bankruptcy protection, citing fall sales and rising food costs. A host of other chains -- from Outback Steakhouse to Ruby Tuesday's -- are also struggling.

 

Almost a dozen airlines shut down.  Restaurants closing all over the place.  Mortgage companies closed up.  Banks laying off thousands.  Homebuilders shrinking and closing.  Government laying off.  Retailers shutting down.

How long can this continue and to what end?????

1 Comments – Post Your Own

#1) On June 04, 2008 at 11:09 AM, alstry (35.03) wrote:

Let's take one restaurant shutting down and let's see how much value evaporates.

Let's take your middle of the road casual dining restaurant worth about $2.5 million per unit.  Aside from all the human impact, which is large because about 30% of a restaurants revenues goes to pay wages, the economic effect is very large as well.

First, the sales tax is no longer generated which could easily have exceeded $200K per year.  Rent is not being paid to the landlord which was probably capitalized in a loan for a few million.  The landlord defaults on the lender and also can't pay property taxes which was likely around $100K per year.  The lender, with a bad loan on the books has its lending capacity constrained and can't lend.......

this goes out much further buy you should get the idea.....this is what I call concentric contraction as more and more business fail......it will cause more and more to go under as well ..............until we reach a core.

The problem now is how small is the core?

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