Hooters’ Problems Pose a Test for Securitizations: Credit Weekly

A form of Wall Street financial engineering that’s become popular with chain restaurants is about to get a serious stress test, as Hooters heads toward bankruptcy and TGI Friday’s remains mired in one.

Whole-business securitizations took off over a decade ago, allowing retail chains to raise money more cheaply than in junk bond markets by promising future cashflow from their franchised restaurants and stores. There are now about $36 billion of the bonds outstanding, according to JPMorgan Chase & Co.

The bonds drew investors because of their apparent safety. Backed by most of a parent company’s assets and cashflow, ...