Riskiest restaurant stocks, based on Prof Ed Altman's Altman-Z score The Street.com
Daily Pulse

Iced out – Friendly’s to file for bankruptcy

Paddy Hirsch Sep 30, 2011
Riskiest restaurant stocks, based on Prof Ed Altman's Altman-Z score The Street.com

Riskiest restaurant stocks, based on Prof Ed Altman’s Altman-Z score

source: The Street.com

There’s nothing like an ice cream to boost your morale. And in this economy, we could all use a psychological pick-me-up. But news today suggests that many American’s can’t even afford to spring for a sundae: Ice-cream chain Friendly’s says it could file for bankruptcy as early as next week .

That’s has dented our morale somewhat, and pushed the Marketplace Daily Pulse down a beat.

Friendly’s isn’t the first restaurant to crumble under the weight of the recession, by any means. The Italian chain Sbarro went bankrupt in April. The Perkins and Marie Callender’s restaurant chains filed in early June, with plans to close 65 of their 600 locations and cut 2,500 jobs. Charlie Brown’s Steakhouses and Fudruckers also hit the wall this year. Even celebrity-backed restaurants have fallen: Eva Longoria’s Las Vegas restaurant Beso filed for protection in January, and Michael Jordan’s The Steakhouse NYC, was dunked in November of last year.

But Friendly’s had its work cut out for it from the start. Not the start of its existence – it was founded in 1935 – but the start of its relationship with its latest owner, Sun Capital. Sun bought the company in 2007 for $337 million. Sun loaded the company with debt – $250 million, the Wall Street Journal says – and the company always struggled to keep up with its payments. It didn’t help, of course, that the recession kicked in just 18 months after the Sun buyout. As the Journal puts it:

A slumping U.S. economy has forced many consumers to dine out less frequently, crimping Friendly’s sales just as rising prices for corn, butter and other ingredients drained its cash.

The Journal reported that the more than 500 Friendly’s location will likely remain open during bankruptcy proceedings, with the help of a $75 million financing deal with Wells Fargo bank. The company employs 10,000 people.

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