Del Taco franchise owner in Georgia and Alabama files for bankruptcy protection
In a move that has shaken the fast-food industry, Matador Restaurant Group, a 22-unit Del Taco franchisee based in Greenville, South Carolina, filed for bankruptcy on Tuesday. The challenges at the Del Taco locations led to separate bankruptcy filings for each of those operations.
Matador, owned by Red Door Brands which also operates Little Caesars, McAlister's Deli, and Arby's restaurants, declared between $1 million and $10 million in assets and the same amount on liabilities. The bankruptcy filing was to stop collection efforts and allow for a reorganization.
The roots of Matador's financial troubles can be traced back to late 2024 when the Del Taco restaurants began having problems due to a combination of "company growth, an unexpected decline in sales, and rising operational costs." System sales declined 1.8% last year for Del Taco, according to Technomic data.
Matador took out cash advances on the advice of its brokers as a "bridge" as it analyzed its cashflow issues. However, the company has more than $2.7 million in 10 separate merchant cash advances (MCA) with nine different entities. Those loans only put the company further into financial distress due to the excessive fees, interest rate, and aggressive payback schedules.
The MCA providers have asserted their interest more aggressively over the past month in the Matador case. Several creditors have filed a UCC-1 financing statement, indicating potential interest in the operator. A lien hold was placed on some of the company's accounts, making it difficult for the company to operate.
The risks and challenges associated with merchant cash advances (MCAs), as exemplified by cases like Matador's, primarily include high costs, cash flow strain, complex and burdensome contract terms, and the potential for debt cycles that can overwhelm a business.
Extremely high effective costs, cash flow pressure, complex contract terms and aggressive enforcement, stacking and debt cycles, and limited regulation are some key risks associated with MCAs. These challenges have contributed to bankruptcy scenarios like that of Matador, where presumably the burden of MCA repayments became unsustainable amid operational pressures.
Jack in the Box, Del Taco's parent company, is selling the brand and expects to find a buyer by the end of the year. Meanwhile, the bankruptcy filing of a large and relatively new Del Taco operator in Colorado temporarily closed all but one of the chain's restaurants in the state.
Businesses should carefully assess these risks before opting for MCAs. While they offer fast and easier access to funding relative to traditional loans, the high cost, cash flow stresses, legal complexity, and risk of escalating debt can make them hazardous, especially if used as a long-term or repeated financing source.
- The financial troubles of Matador Restaurant Group, which owns Del Taco locations, can be attributed to company growth, a decline in sales, and rising operational costs, coupled with the high costs, cash flow strain, complex contract terms, and aggressive enforcement associated with merchant cash advances (MCA) they took out to address cash flow issues.
- Given the case of Matador Restaurant Group, it is crucial for businesses to exercise caution when considering merchant cash advances (MCA), as the high costs, cash flow pressures, legal complexity, and risk of escalating debt can potentially lead to unsustainable repayment burdens and bankruptcy scenarios, as demonstrated by the Del Taco franchisee.
