Commercial Finance partner Derek Ladgenski discussed risk profiles for restaurants and how the coronavirus (COVID-19) pandemic is impacting banks and private credit firms’ lending to the franchise and restaurant industries with S&P Global’s “Market Intelligence” series.

The coronavirus has made full-service, sit-down restaurants, and the finance companies that lend to them, most vulnerable, whereas “quick service” or “limited service” restaurants have been able to remain open and are more easily manage operations with social distancing requirements in place, limiting losses for banks that focus on these types of establishments.

Full-service restaurants that have implemented new practices during the pandemic, such as spreading out tables, stricter cleaning measures and printing single-use menus, will have increased costs and continue to struggle.

Derek said lenders have required less leverage, higher equity contributions and fewer borrower-friendly legal provisions when considering new deals.

“People who know the space are well-positioned to come out of this OK. They don’t know when it’s going to be OK or how long it’ll take, but they know lending is a partnership,” he explained.