Capital Markets

BofA’s Big Mac Attack

Some McDonald's franchisees are told to seek alternative financing after Bank of America declines to boost its lending volume.
Stephen TaubSeptember 23, 2008

While Henry Paulson and Congress spar over how to provide aid and liquidity to financial institutions sitting on massive toxic assets, the rest of Corporate America and individuals that need financing must find alternative sources.

Underscoring that quest is the quintessential American Main Street business: McDonald’s.

The world’s largest fast-food chain has told some U.S. franchisees to seek alternative ways to finance store improvements after Bank of America declined to increase its lending, Bloomberg news reported.

McDonald’s said in a memo obtained by the wire service that the embattled bank won’t provide more money while it works on its planned purchase of Merrill Lynch.

“Bank of America has been taking steps to increase capacity to fund additional growth,” the treasury department of reportedly wrote in the Sept. 19 memo to franchisees in the Rocky Mountain region.

The memo also stated: “Its announcement last weekend of its intention to acquire an investment bank and the volatility in the debt markets, especially this past week, have impacted B of A’s ability to get the quick solution originally anticipated.”

It is a big setback for the franchisees, who are in the middle of a major capital expenditure phase as they upgrade their stores and buy equipment for new products such as lattes and espressos.

“This is the first signal that turmoil in the financial markets is reaching McDonald’s,” Richard Adams, a former McDonald’s franchisee in San Diego, told Bloomberg, which noted that Adams is a consultant to about 300 of the company’s franchisees.

McDonald’s spokesman Walt Riker told Bloomberg that franchisees have credit access through 50 regional banks and seven national institutions. “We recognize current trends, but we want to make it clear that McDonald’s and McDonald’s franchisees have a variety of sources to get cash,” he added.