Senate Set to Pass Small-business Bill

Jay Heflin reports at The Hill that Senate Small Business Chairwoman Mary Landrieu (D-La.) on Wednesday said her chamber will pass legislation by the end of the week that creates a $30 billion lending pool for small businesses and provides approximately $12 billion in tax relief for these organizations.

We believe we have the 60 votes to get this done,” she told reporters, adding, “We’re hoping at the end that we actually have some Republicans join us for a bill that makes so much sense.”

Landrieu said negotiations were ongoing with Sen. George LeMieux (R-Fla.) on getting him to support the bill.

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Landrieu did not say if she expected other Republicans to support the bill.

A vote on the measure is expected to occur after the Senate extends unemployment insurance, which is expected later today.

The lending pool in the small-business bill has come under fire by Republicans who contend it will create another TARP scenario by giving the Treasury authority over which small banks receive the funds to lend to small businesses.

Landreiu said the lending provision will be stripped from the original bill and then will be offered as the bill’s only amendment to illustrate who supports the pool.

“We want to highlight the fact of who’s actually stepping up to help small businesses through small banks,” she said.

An amendment on the estate tax offered by Sens. Jon Kyl (R-Ariz.) and Blanche Lincoln (D-Ark.) will not be offered.

Landrieu said if the lending amendment fails the other portions of the bill will move forward. The other sections provide small-business tax relief and extend Small Business Administration loans. However, without the lending provision, the senator does not think the bill will pass.

“I don’t think it will pass without this in it,” she said.

 Learn more at: National Association of Government Guaranteed Lendors

NJ Woman uses Proceeds from $45m. Ponzi Scheme to Buy a Dunkin Donuts Franchise

TANYA DROBNESS reports in THE MONTCLAIR TIMES that a Montclair, NJ woman surrendered to the FBI yesterday on charges of running a $45 million real estate investment Ponzi scheme, the U.S. Attorney’s office in Manhattan announced.

Antoinette Hodgson, 58, allegedly bilked more than 20 investors in New York and New Jersey of tens of millions of dollars, allegedly telling her victims she was using their money to buy and renovate homes and sell them for high returns, prosecutors said.

However, authorities said, she allegedly used the money to repay previous investors in the pattern of a classic Ponzi scheme, according to a complaint unsealed yesterday in Manhattan federal court.

Authorities said Hodgson allegedly spent hundreds of thousands of dollars at casinos in Atlantic City and Las Vegas, and spent more than $700,000 on a Dunkin Donuts franchise in Arizona, according to court papers. She also allegedly gave tens of thousands of dollars to friends and family members, according to court papers.

Between 2006 and 2009, when the solicitation allegedly occurred, Hodgson only spent approximately $6 million on residential real estate, according to court papers.

Hodgson, who is also known as “Dina” according to the complaint, was expected to appear in Manhattan federal court yesterday, authorities said.

Hodgson is charged with conspiracy to commit wire fraud and wire fraud, authorities said. If convicted, then Hodgson could face a maximum sentence of 20 years in prison for each of the conspiracy and wire fraud counts, authorities said.

“This case is a further reminder that whether the real estate market is up or down, innocent investors can be and will be targeted by unscrupulous fraudsters,” U.S. Attorney Preet Bharara stated.

“Antoinette Hodgson allegedly has already proven she’s a lousy gambler by losing the investor’s money in the casinos,” FBI Acting Assistant Director-in-Charge George Venizelos stated. “She has now gambled with her future and faces serious charges for a plot of her own making.”

Read More at: The Montclair Times

TD Bank buys S.C.-based South Financial

The Boston Business Journal reports that TD Bank Financial Group, the parent of TD Bank, said Monday it has struck a deal to acquire a money-losing South Carolina-based bank with an elevated amount of problem loans on its balance sheet.

Editor’s note: TD Bank is a DDIFO Sponsor.

As part of the deal, Toronto-based TD Bank Financial said it will inject an estimated 250 million Canadian dollars ($241.7 million) in capital to stabilize the operations of acquisition target, The South Financial Group.

In addition, TD Bank Financial (NYSE: TD) said it will pay about $61 million in cash or common stock for South Financial Group (Nasdaq: TSFG) of Greenville, S.C. Before the deal is completed, the U.S. Treasury also will sell to TD its $347 million of South Financial preferred stock and discharge all accrued but unpaid dividends for total cash consideration of about $131 million.

Though South Financial Group has had a problem with troubled loans, TD Bank Financial emphasized that deal adds 176 branches to its footprint in the Southeast, including 66 in the Florida market.

“This is a relatively small acquisition and exactly the kind of unassisted transaction that we’ve said we’re comfortable doing,” TD Financial Group CEO Ed Clark said in a press release.

At the end of March, South Financial had $8 billion in loans and nearly $10 billion in deposits on its balance sheet.

Since the beginning of 2008, however, South Financial’s operations have generated more than $1.3 billion in losses, TD Bank said. The losses stem mostly from residential construction and land development loans.

The bank recently entered into a consent order with the Federal Deposit Insurance Corp. and was told to raise capital and pare problem loans. The bank is not considered to be well-capitalized by bank regulators.

The South Carolina-based bank lost $85.8 million in the first quarter, compared with a net loss of nearly $194 million in the year-earlier period.

The bank set aside $95.1 million for anticipated loan losses, down from $171 million in the year-earlier period.

Nonperforming assets, as a percentage of total assets, were 4.17 percent at the bank.

Read more: TD Bank buys S.C.-based South Financial – Boston Business Journal

Business Sellers Increasingly Play Banker

Monica Mehta writes at Bloomberg BusinssWeek that business sellers are using creative financing to command better prices or close deals.  During the recession, merger and acquisition activity in the lower-middle market (private companies with up to $100 million in annual sales) was anything but active. Now sharp discounts of private company valuations—I’m seeing 30 percent to 40 percent reductions from 2007 levels—are again piquing buyer interest. But with deals on the table and the dialing for dollars begun, the bank loan market, which is still licking its wounds from the credit crunch, is coming up short. Buyers are increasingly turning to sellers to fill the funding gap. It’s not that financing is unavailable. Companies with strong recurring cash flow and significant collateral can still obtain debt. They’re just raising less of it and at a higher cost.

Acquirers accustomed to providing only 30 percent equity and funding 70 percent of a deal through bank loans are now lucky to get a commitment for even 50 percent of the purchase price. Increasingly, they are looking to the seller to supply a separate loan (often called a note), to cover the remaining 20 percent. The seller is becoming the lender of last resort.

Seller participation in deal financing is not new. Most prerecession deals included some kind of earnout provision that delayed payment of a portion of the purchase price—up to 20 percent for one to three years. Despite cutting down the immediate tab for the seller, earnouts continue to be used primarily as insurance against seller misrepresentations post-closing.

In most instances, a seller note is still issued on top of bank debt and earnouts. When any portion of a purchase is financed by a conventional lender, seller paper is almost always subordinate in terms of when the note is paid and the ability to exercise remedies in the event of a default. Transactions are highly negotiated, with terms varying widely from deal to deal. Seller paper is usually held longer than a bank loan and can have limited transferability. Commensurate with the additional risk, interest rates for seller paper are almost always higher than those for traditional loans.

Read more at: BloombergBusinessWeek

Financing Programs Aim to Help Franchisees

Emily Maltby reports in the Wall Street Journal that Arthur Romanov and Irina Salgan opened their sixth Edible Arrangements fruit-basket shop recently to take advantage of low real-estate prices and easy-to-negotiate contractor bids.

Despite good credit and a strong track record, the longtime franchise owners weren’t able to secure traditional bank financing, as they had for past expansions. Instead, Mr. Romanov and Ms. Salgan used a lease-to-buy program offered by Edible Arrangements International Inc.’s year-and-half-old financing arm, Farid Capital.

As bank lending continues to be sparse, a number of corporate franchisers are providing financing arrangements and other aid to potential franchisees. Though business owners say they’re grateful for the assistance, many of the programs do come with strict terms.

Farid Capital’s lease-to-buy program requires most franchisees to contribute about 30% of the costs. But Mr. Romanov says he wouldn’t have been able to afford the $130,000 in start-up expenses without the $60,000 he requested from Farid. “We need all the help we can get,” he says.

The moves by franchisers to provide more aid come as many former top lenders, including CIT, Comerica and Banco Popular have severely curtailed their lending, says Ronald A. Feldman, chief executive at Siegel Financial Group, a business consulting firm in Conshohocken, Pa., that specializes in business acquisitions and franchise financing. What we’re seeing is that some franchises will now “provide credit enhancement to banks, such as partial guarantees on the loan,” Mr. Feldman says.

Others are helping candidates become more viable before heading into the bank. Dunkin’ Donuts has reduced some of the royalty fees the franchisee would pay, so long as the shop opens in targeted markets. Because franchisees pay those fees on the sales they make, they can show the lender “greater profitability and ability to repay with reduced expenses,” explains Grant Benson, vice president of franchising for Dunkin’ Brands Inc.

At the International Franchise Association, a trade group in Washington, spokeswoman Alisa Harrison says more franchises are brainstorming strategies, such as developing internal financing divisions. “Members have told us some of their highest-quality prospects are still having a tough time getting financing,” she says.

Banks are expected to lend $6.7 billion to franchises in 2010, an amount that is projected to fall some $3.4 billion short of demand, according to a study released in December by the IFA and FRANdata, a franchise research firm.

Read more at: Wall Street Journal

CKE Restaurants to Be Acquired by Apollo Affiliate

Bloomberg BusinessWeek reports that CKE Restaurants Inc., operator of the Carl’s Jr. and Hardee’s fast-food chains, said it will sell itself to an affiliate of Apollo Management LP for $12.55 a share in cash, or about $694 million.

CKE terminated a previous merger agreement with affiliates of Thomas H. Lee Partners LP, it said in a statement today. THL Partners, which owns a stake in Dunkin’ Brands Inc., had offered $11.05 a share.

CKE said on April 7 it had received a rival proposal from a then-unidentified bidder that may top the bid it had accepted from THL Partners in February. The acquisition by Apollo affiliate Columbia Lake Acquisition Holdings Inc. shows private equity firms are interested in restaurant chains because of their relatively low debt and good cash flow, said R.J. Hottovy, a restaurant analyst at Chicago-based Morningstar Inc.

Apollo spokesman Charles Zehren declined to comment. CKE spokeswoman Beth Mansfield and THL Partners spokesman Matt Benson didn’t return messages left after-hours at their offices.

CKE has 3,141 restaurants in 42 states and 14 countries, including 1,224 Carl’s Jr. restaurants and 1,905 Hardee’s sites. Founder Carl Karcher borrowed $311 to buy a Los Angeles hot-dog cart in 1941 and became a pioneer in the industry, introducing salad bars, char-broiled chicken-breast sandwiches and self- service beverage stations. He died in 2008.

Related reading at DDIFO.org: CKE Reastaurants Says New Takeover Bid is Better  

For franchisees, a new lender steps up to bat

CNN Money.com reports that a new player is charging into the arid landscape of banks willing to lend to franchise operators. Bancorp Bank, based in Wilmington, Del., said this week that it will launch a new program specifically targeting startup and expanding franchises.

Bancorp plans to limit its program to 30 yet-to-be-selected franchise brands with “measured performance and experience within their operations,” and will make its loans through the Small Business Administration’s guaranteed lending programs. The bank is partnering on the effort with consulting group Franchise America Finance, a newly launched subsidiary of Siegel Financial Group.

“We got together because we saw a vacuum of capital access to small business,” said Nathan Greenberg, one of Franchise America Finance’s three founding partners. “We expect to have brands coming on board in the next 30 days.”

Bancorp didn’t put a dollar figure on its new lending program, though it said it intends to build a “significant” SBA lending portfolio. Recent hire Dianne Gallion, an SBA lending veteran who most recently ran Banco Popular’s small business loan programs, will head the initiative.

“Bancorp Bank is very excited to enter the national franchise lending arena,” Gallion said in a written statement. “We are focused on lending to only the best of the best in franchising, while helping the economy by stimulating job creation through a proven business model.”

Lending crunch: The past year has been a grim one for franchise operators looking for financing. Lending to franchisees plunged 36% to $7.5 billion in 2009 from $11.7 billion in 2008, according to a year-end report from franchise research firm FRANdata. In 2010, the firm forecasts that franchise lending will contract even further, to $6.7 billion.

That’s a far cry from the $10.1 billion that FRANdata expects franchise businesses to demand in the coming year. In its own economic research, PricewaterhouseCoopers forecast that the number of franchise outlets in the U.S. will rise 2% in 2010, topping 900,000.

“Capital access has become the number-one issue in franchising, impacting new unit growth, ownership transfers, and even unit renovations,” FRANdata President Darrell Johnson said in a written statement.

One key player in the franchise lending field, CIT Group (CIT, Fortune 500), essentially disappeared from the market last year as it lurched toward its eventual bankruptcy. Once the SBA’s most active lender and a preferred financer for franchisors like Dunkin’ Donuts, the Melting Pot and Cici’s Pizza, CIT originated only a handful of loans in 2009. That left many potential franchise operators scrambling to find an alternate lender.

Bancorp sees opportunity in that gap. The online bank holds assets of $2 billion, mostly commercial loans in the Delaware Valley area, but is looking to expand. SBA lending will be a new field for the bank, which has done little so far in the government-backed lending market.

Read more at: CNN Money

CKE Restaurants has Better takeover offer from Apollo

The operator of Carl’s Jr. and Hardee’s restaurants said Wednesday it may have received a better takeover offer than the one it already has from a private equity firm.

CKE Restaurants Inc. said an unnamed party submitted a bid that may be superior to its current deal with Thomas H. Lee Partners, a Boston firm that’s among a trio of investment firms that bought Dunkin’ Brands Inc. in 2006.

The rival buyout offer received by CKE Restaurants Inc. this week was from private-equity firm Apollo Management, Reuters reported Thursday.

CKE, the Carpinteria, Calif.-based parent to the Carl’s Jr. and Hardee’s chains, has until April 27 to evaluate the new offer.

On Wednesday, CKE said it had received a buyout offer that may be better than the bid made in February by private-equity firm Thomas H. Lee Partners LP to buy the company for $928 million. THL’s offer includes the assumption of $309 million in debt and a per-share cash price of $11.05.

Read more: Nation’s Restaurant News

The news sent the company’s stock up 75 cents, or 7 percent, to $11.83 in premarket trading. The shares have traded between $7.60 and $11.57 over the last year.

CKE accepted Lee’s offer in February, which includes about $619 million in cash and approximately $309 million in debt.

Under terms of the deal, CKE shareholders would receive $11.05 in cash for each share they own.

CKE did not disclose many specifics about the new proposal, but said it can keep talking with the bidder until April 27 because of terms in the agreement with Thomas H. Lee. The bidder did not disclose how they would pay for the transaction.

CKE was allowed to seek alternative offers until Tuesday. Back in February the restaurant operator, based in Carpinteria, Calif., said it wouldn’t disclose any information related to its talks with other potential buyers — unless its board decided that a superior bid had been received.

Representatives for CKE and Thomas H. Lee couldn’t immediately be reached for a comment.

Business for CKE and many of its competitors slowed during the recession and kept some of its most loyal customers — young men — away from its restaurants.

CKE reported late last month that its fourth-quarter profit grew, but it was mostly due to a sizable tax benefit. The restaurant operator’s revenue fell nearly 5 percent during the quarter, while sales at stores open at least a year dropped 6 percent. This figure is considered a key performance indicator because it measures growth from existing locations rather than newly opened ones.

For the full year, CKE’s profit climbed 30 percent as annual revenue slipped 4 percent.

The company operates and franchises 3,141 restaurants in 42 states.

Other related reading at DDIFO.org: Carl’s Jr. Owner CKE Bought by Thomas H. Lee Partners  and Other buyers interested in CKE?

White House starts $21 million program to aid small businesses

David Cho of the Washington Post writes that in March 2009, President Obama vowed to address the drought of bank lending to small companies and announced an initiative to use $15 billion from the federal bailout to unfreeze the markets that finance Small Business Administration loans.

More than a year later, the program was finally launched — as a $21 million effort.

The program is one of several small-business lending initiatives developed by the administration that have struggled to get off the ground. Meanwhile, lending to these companies has fallen. Federal data show that lending to small businesses by community banks declined by about $8 billion, or 2 percent, between September 2008 and September 2009.

Administration officials say helping small businesses get credit remains a top priority. It is a critical component of the strategy to address the nation’s high unemployment. More than half of all U.S. workers are at companies with fewer than 50 employees. Without access to loans, many of these firms are laying off workers or shutting their doors altogether.

Obama’s economic team has put forward several major programs to increase small-business lending.

The first, unveiled in March 2009, focused on helping the SBA get loans into the hands of small businesses. This initiative proposed spending $15 billion to aid the markets that provide the financing for SBA loans. But in the months after the government’s announcement, these markets recovered on their own, administration officials say. As a result, there was no need for a more expensive program.

Officials at the Treasury Department decided to launch a tiny $21 million pilot version of the program last month, just in case SBA lending falls back into turmoil. If that happens, the Treasury could easily ramp up the initiative now that it is operational, officials said.

While the financing markets for SBA loans improved, virtually all other kinds of small-business lending remained troubled.

To address this broader problem, the administration in January proposed taking $30 billion from the $700 billion Troubled Assets Relief Program and offering that money to banks that lend to small businesses.

The aid would be given to these institutions at favorable annual interest rates, as low as 1 percent. The banks must show how they are using the funds to help small companies.

Administration officials also asked Congress to drop conditions attached to bailout funds, such as limits on executive pay, in order to encourage banks to take the money. They noted that hundreds of smaller banks last year did not take federal aid because of the stigma and the conditions attached to the funds.

Read more at: Washington Post

Papa Murphy’s Sold to Lee Equity Partners

VANCOUVER, Wash. – April 1, 2010 – New York-based private equity firm Lee Equity Partners has signed a definitive agreement to purchase the nearly 1,200 unit Papa Murphy’s Take ’N’ Bake pizza chain from its current majority owner, Charlesbank Capital Partners. Terms of the deal are not being disclosed. Lee Equity Partners is one of consortium of global private equity firms including Bain Capital Partners LLC, The Carlyle Group that own Dunkin’ Brands, Inc.

Papa Murphy’s said that the transaction will position the company for its next phase of growth, as it continues to seek new franchise owners and open locations, primarily in the Southwestern and Southeastern United States. The deal is expected to close in the second quarter of 2010.

Since Papa Murphy’s recapitalization by Charlesbank in 2004, the take ‘n’ bake pizza pioneer has seen its domestic system-wide sales increase by more than 63%, according to John Barr, Chairman and CEO of Papa Murphy’s. “Charlesbank has been a great value-added partner, and I credit much of our strong position in the current marketplace to their support over the years,” said Mr. Barr. “This new chapter with Lee Equity will undoubtedly benefit all of the brand’s stakeholders, including our franchisees, employees and vendors. I look forward to working together to provide an even stronger foundation for expansion and profitable growth.”

“John Barr and the management team have done a terrific job developing the company internally and fortifying its industry leadership position and strong franchise network,” said Michael Eisenson, Charlesbank CEO. “This has been a rewarding investment for us, and we look forward to a very successful partnership between the company and Lee Equity Partners as the management team continues to execute their strategy for growth.”
Thomas H. Lee, President of Lee Equity Partners, said that his organization was impressed with Papa Murphy’s potential for future growth. “This is an outstanding brand with a strong management team. We are very excited about the expansion possibilities into areas of the country where they have little or no presence today.”

Mr. Lee has been involved in a number of high growth consumer-oriented acquisitions, including Snapple Beverage Corp., General Nutrition Companies, PETCO Animal Supplies, Inc., Ghirardelli Holdings Corp., Banana Boat, and Sterling Jewelers, Inc., among others.

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