(Bloomberg) -- GPS Hospitality LLC, which operates networks of fast-food chains Burger King and Popeyes Louisiana Kitchen, is huddling with advisers about how to manage a shrinking cash pile amid revenue headwinds, according to people with knowledge of the discussions.
The Atlanta-based franchisee tapped law firm Paul Hastings and investment bank Houlihan Lokey Inc. for help managing its debt load and the risk of breaching some of its terms, said the people, who asked not to be identified discussing private conversations. A group of creditors to GPS is working with lawyers at Paul Weiss Rifkind Wharton & Garrison for advice on options and to protect their interests.
GPS Hospitality’s stores are of a model that typically performs well during economic cycles given the low price points of the chains. Still, its exposure to states in the Gulf region of the US, which are more sensitive to economic tightening, makes GPS particularly vulnerable to downturns, Fitch Ratings said in a June report, which affirmed its debt rating at CCC+.
The company has told investors its own costs have risen as inflation climbed, but it couldn’t hike prices to meet them without turning off some of its budget-conscious customers, one of the people said. Other low-cost dining chains that have suffered in recent years include TGI Friday’s Inc., which filed for bankruptcy protection in November.
Representatives for GPS, Paul Hastings, and Paul Weiss did not respond to requests for comment, while Houlihan Lokey declined to comment.
GPS Hospitality’s 7% bonds due in 2028 were trading earlier this month at less than 58 cents on the dollar, according to data compiled by Bloomberg.
In its June report, Fitch cited the company’s high leverage and “limited liquidity cushion.” GPS managed a portfolio of 447 franchised restaurants as of that report’s publication, after having closed 26 under-performing locations in 2023 and two in the first quarter of 2024, mostly in the Gulf region, Fitch said.
The ratings agency at that time cited softer consumer spending as an ongoing source of pressure for GPS.
(Updates company comment line, adds more detail from Fitch report in last paragraph.)
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