Back in October, the Double Down served up all of the publicity KFC Canada could dream of.
But now reality has set in. This week Priszm Income Fund , which operates KFC and Taco Bell restaurants in Canada, announced it is selling 232 restaurants in Ontario and British Columbia for $46.4-million. Of those, 78 are leased to the company by Scott's REIT , and the two businesses are tightly linked because John Bitove is chairman of both.
The news didn't look good at first glance, and it gets even uglier when you dig down into the numbers, which analyst Brad Sturges at CIBC World Markets did. This month Priszm has $65-million of long-term debt maturing, but on Dec. 10, the trust did not pay interest on it to its senior lender.
Even after the asset sale, roughly $20-million of this debt will remain unpaid.
Priszm is also in the midst of upgrading its locations because they don't meet franchisor Yum! Restaurants Canada's image standards. About 40 per cent of Prizm's restaurants need upgrades, and Mr. Sturges noted that "Priszm does not appear to have the financial capacity to fund these improvements."
The bad news spreads to Scott's REIT. The company already received a three-month extension on a $65-million mortgage, and is now asking for a second 90-day extension. Scott's also has a $20-million bridge loan coming due in March.
If all the hype around the Double Down held up, digging out of this hole would be easier. But Priszm's same store sales are down 5.6 per cent in 2010 over last year.
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Tim Kiladze