Menus For Money; or, Should We Post The Nutritional Values of Dollars?

The New York Times recently printed an article (December 23, 2009) detailing the efforts of Danny Meyer and other restaurateurs -- from Huddle House to the highest of high-end dining -- to manipulate their menus in order to keep customers coming in, spending money, trying new items, and generally combating the wave of consumer reluctance which has been an obvious and unavoidable corollary to the current portion of the economic cycle. It’s a valuable article, including commentary from “menu engineers” and professors and scholars in the field of Hospitality Management and consumer behavior. The link is at the bottom of this column.

The article set my mind wandering -- thinking about how similar is the effort by consumer credit providers (credit card issuers, home equity line underwriters, and so forth) to make their products appeal to their target clients, and how different it is from the larger-dollar world of corporate credit and equity. If one places capital providers on a line, one end is populated by the banks and card-issuers who focus on customized cards, colorful brochures, and the like -- the other by relatively colorless institutions which offer to find or provide the most dollars at the best terms, yet admit (grudgingly) that those ‘best terms’ may vary from day to day.

I realize this is largely just a “flight of fancy”, but indulge me for a paragraph or two ... now that an increasing number of restaurants are compelled to post the nutritional and caloric content for not only customers, but window-shoppers and (heavens forbid) competitors to see and evaluate, imagine walking past the front window of your local Global Bank or Equity Investor and seeing the following items on the menu:

Working Capital Lines ... maturity 18 months ... limited to 70% of current assets or 50% of trailing free cash flow at all times ... senior to all other debt claims ... priced at LIBOR + 1.50% plus a 0.5% closing and issuance fee. (Audit required, see officer for details)

Term Loans ... maturity 60 months ... limited to 65% of fixed assets or 175% of trailing free cash flow at all times ... senior to all claims (may have equal claim to our Working Capital Line for multi-product customers) ... priced at LIBOR + 3.25% plus a 2.0% closing and issuance fee. (Audit required, see officer for details)

Mezzanine and Subordinated Debt Facilities .... for the hearty credit consumer ... maturity 75 months ... limited to 350% of trailing free cash flow less any outstanding senior debt facilities ... priced at 12% cash, plus warrants or other equity enhancement, and 3.0% closing and issuance fee. (Audit required, see officer for details)

Private and/or Public Equity Capital ... price based on capital market availability ... ask for this week’s specials.

Apart from the fact that there are legal and regulatory impediments to finding all these items in one place, wouldn’t that be a nice way to do business? It would certainly take some of the (needless) mystery out of shopping for capital, and allow the owner/operator to establish very quickly which menu items were interesting and appropriate.
To their credit, many lenders and investors try to de-mystify their capital facilities, by providing “sample” term sheets to outline both the qualification requirements and costs of various types of debt and equity capital, but these tend to be offered one at a time, with limited opportunity for window shopping.

Operators or companies who engage advisors or investment banks to “shop” for them are often more successful in replicating this sort of menu experience, as a good “shopper” can compile a broader list of choices. This is particularly valuable when it comes to equity and/or subordinated debt, but has also proven necessary in many cases over the past year for finding pure senior debt.

And now, in another “flight of fancy”, I’ll take the other side of the argument: the lender or investor will say that such a system can’t work, because in most cases they don’t have a permanent pool of capital, and must rely on what is available at the time (whether depositors’ accounts, or longer-term investors’ funds). You’ll recall some prior columns where we discussed the fact that most lenders and investors do not, in fact, have their own capital. Still, I’m tempted to dismiss this by thinking that each menu item item could just include an “Available Today” check box or lightbulb -- not ideal for the capital shopper, but still an improvement.

I know I’ve vastly oversimplified the process of seeking capital, but a guy can dream, right? Let me know if you have other bright ideas on the subject.

Here’s the NYTimes link I mentioned earlier ... http://tinyurl.com/y9nmc6h