Irvine, California-Numerous Taco Bell franchisees, squeezed by a drop in sales, are delinquent on loans they took out to buy restaurants from the Irvine, California-based chain's parent company, according to sources familiar with the transaction.
The extent of the delinquency isn't clear, but as many as 1,000 restaurants-one-quarter of the Taco Bell franchised outlets in the United States-could be "at risk unless something is done," said analyst Damon Brundage at Raymond James & Associates.
He made the assessment after talking with officials of Taco Bell's parent, Tricon Global Restaurants Inc., which also owns the Pizza Hut and KFC chains.
Taco Bell's sales have been hurt by consumer concern about a recall of taco shells that contained Starlink, a genetically engineered corn not approved for human consumption.
During Tricon's short life as an independent company, selling stores to franchisees has become almost as important to its well-being as selling pizzas, burritos and buckets of chicken.
The strategy of refranchising some Taco Bells and other restaurants, as the practice of converting company-owned restaurants into franchised units is known, has given Tricon's earnings a healthy boost since it was spun off by PepsiCo Inc. in 1997. But some of the refranchising effort is now coming back to haunt the company. Indeed, bankruptcy filings by some distressed franchisees are a real possibility. In recent months, two large Taco Bell operators did just that.
"Delinquencies have been on the rise," said Jeffry Butcher, controller of Bay View Capital Corp., a San Mateo, California, concern negotiating with Tricon on a possible solution.
Tricon announced that it has set up a $15 million loan pool to help cash-strapped Taco Bell franchisees. The company added that it might have to repurchase some restaurants. -Los Angeles Times