Standard and Poor has serious doubts Steak 'n Shake will continue to be able to meet its financial obligations.
The credit rating agency downgraded Steak 'n Shake to CCC- from CCC grade last Friday. S&P said the company has a $5 million interest payment coming due in September, and predicts there is an elevated likelihood the burger chain won't be able to make good on its debt obligations.
"The negative outlook on SnS reflects our view that the company may be unable to meet its financial obligations because of its weakened liquidity and could pursue a restructuring or distressed exchange in the next six months," S&P analysts said in a ratings statement.
A CCC- rating places Steak 'n Shake's debt well below investment-grade territory.
Plaintiffs suing the company for misclassifying employees as management in the St. Louis and Peoria areas to avoid paying out overtime announced an $8.35 million settlement on Monday. The plaintiffs' attorneys cited the company's financial condition for taking the deal now for its clients, rather than waiting years to sort out the Peoria case in federal civil court.
Steak 'n Shake has closed numerous locations across the country in recent months, ostensibly as it seeks to reopen the stores under new third-party franchsing agreements. One store in Peoria has remained closed since January.
S&P said it could raise Steak 'n Shake's credit rating if the company refinances its loan debt at par, a prospect analysts deem unlikely.
