Restaurant Chains Received Many of the Biggest PPP Loans – Barron’s

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A Shake Shack cheeseburger and french fries.

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While many small businesses were shut out of the Paycheck Protection Program, a number of public companies received PPP loans, according to
Morgan Stanley.

The companies range in size, said Todd Castagno, an equity strategist at Morgan Stanley and author of the research note. The smallest company to receive funding has a $1.1 million market cap, while the largest has a $404.9 million market cap, Castagno said. The number of employees ranged from 14 people at the smallest business, while the biggest had 10,480.

The $2 trillion Cares Act, which Congress passed in late March, included the PPP to help small businesses struggling in the coronavirus lockdown. The PPP empowers the Small Business Administration to provide $349 billion in loans to U.S. companies—debt that will be forgiven if the companies keep their staff on the payroll until June. The Cares Act’s affiliation rule prevents businesses with more than 500 employees from qualifying for the loans. Franchise businesses, including restaurants, are exempted from the rule.

Manufacturing companies received the most in PPP loans, Castagno said. Of the public companies that disclosed receiving the loans, 48 manufacturing businesses, or 54%, secured $162.5 million in loans, he said. Accommodation and food services ranked a distant second, with six companies obtaining $41.7 million in PPP loans, or 14%. The information sector placed third, with 9% of the loans. Information companies received nine loans totaling $28.3 million in PPP aid.

JPMorgan Chase
provided $92.6 million, or 31%, of loans to the public companies, Morgan Stanley said.

Many of the larger PPP loans went to restaurants. The maximum amount a company can receive from the Paycheck Protection Program is $10 million.
Ruth’s Hospitality Group
(ticker: RUTH), which runs 150 Ruth’s Chris Steak Houses, isn’t on the Morgan Stanley list. Ruth’s received $20 million in PPP loans, according to an April 7 Securities and Exchange Commission filing.

Though this was more than the maximum amount allowed under the program, the company got around the rule by having two subsidiaries enter into loan agreements with JPMorgan Chase for the SBA loans, the SEC filing said. Ruth’s didn’t disclose which units applied for the loans. The company didn’t return messages for comment. Shares of Ruth have lost 59% since the beginning of March. The stock is up 7% in recent trading.

J. Alexander’s Holdings
(JAX), which operates grill-style restaurants in 16 states, followed the same strategy. It received $15 million in PPP loans, according to the Morgan Stanley note. Of that, $10 million went to J. Alexander while $5 million went to subsidiary Stoney River, a steakhouse and grill chain, an April 16 SEC filing said. The lender was
Pinnacle Bank.

J. Alexander’s employs 4,200 people and generates $247.3 million in sales. The company’s stock has fallen 50% since March and ended at $4.29 Tuesday. J. Alexander’s could not be reached for comment. The stock is down 4.8% in recent trading.

Fiesta Restaurant Group
(FRGI) received a $10 million PPP loan, Morgan Stanley said. Fiesta is the parent of Taco Cabana, a 170-store chain, and Pollo Tropical. Fiesta produces $660.9 million in sales and employs 10,480 people, Morgan Stanley said. Fiesta’s shares have fallen nearly 27% since March. The stock is up 2.4% in recent trading.

(PBPB), which has $409.7 million in sales and employs 6,000 people, also received a $10 million PPP loan. Since March, Potbelly’s shares have lost nearly 34%. The stock is up 1.5% in recent trading.

Executives for Fiesta and Potbelly could not be reached for comment.

Shake Shack
(SHAK), which employs nearly 8,000 workers, returned the $10 million PPP loan it received. Shake Shack said it raised $75 million from stock sales to tide itself over as the pandemic forces it to furlough many workers and only serve takeout. The company didn’t immediately respond to a request for comment. Its stock is up 8.1% in recent trading.

It wasn’t only restaurants that received large PPP checks.
Hallador Energy
(HNRG), a coal-mining company with $317.4 million in sales, secured $10 million, Morgan Stanley said. Hallador employs 915 people. The company said it would use the PPP funds to pay two months of payroll and other covered expenses. Hallador’s stock fell below $1 in March. The stock is up 0.3% in recent trading.

Broadwind Energy
(BWEN), which is known for making the first 100 meter wind tower in U.S., also received SBA help. Broadwind secured $9.5 million in PPP loans. CIBC was its lender, an SEC filing said. Broadwind employs 521 people and makes $178.2 million in sales. Broadwind said it plans to use the funds mainly for payroll. The stock is flat in recent trading.

Hallador and Broadwind could not be reached for comment.

(QMCO) provides storage, archive, and data protection for small businesses, PitchBook said. It employs 800 people and generates $418 million in sales. Quantum was approved for a $10 million loan. It said it expects fiscal-fourth-quarter revenue of $87 million, below previous guidance of $90 to $100 million. The stock is up 5.1% in recent trading.

“The PPP loan is saving jobs at Quantum—without it we would most certainly be forced to reduce head count,” a Quantum spokesman said. “We owe it to our employees—who’ve stuck with us through a long and difficult turnaround—to do everything we can to save their jobs during this crisis.”

Write to Luisa Beltran at [email protected]

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