Marcus Receives $91M Bank Loan After Federal Cash

Milwaukee-based hotel and theater operator Marcus Corp. has received a new $91 million bank loan to help it deal with the economic effects of the COVID-19 pandemic.

That Thursday announcement raises questions about whether the company, with annual revenue of over $800 million, should return federal cash designed mainly to help small businesses cope with the pandemic.

Meanwhile, Marcus Corp., along with other larger, publicly traded companies, will undergo a federal review over the $11 million in forgivable loans it obtained through the federal Paycheck Protection Program.

The new bank loan is being provided through an existing agreement with several lenders, including JPMorgan Chase Bank, N.A., as administrative agent, and U.S. Bank National Association as syndication agent.

It provides a $90.8 million 364-day loan “to further solidify The Marcus Corporation's already strong balance sheet,” a company statement said.

The company will use the cash to repay loans under its existing $225 million revolving credit agreement, to pay costs related to the new loan, and for general corporate purposes.

Conditions include a suspension of quarterly dividends for the rest of 2020, and limits on dividends during the first half of 2021.

Marcus Corp. has been particularly hard hit by the social distancing response to the pandemic.

Its Marcus Theatres Corp. division in March closed all 91 cinemas, with 1,106 screens, in Wisconsin and 16 other states.

The company's Marcus Hotels & Resorts Inc. division owns or manages 20 hotels, totaling 5,400 rooms, in Wisconsin and seven other states.

It closed the hotels in March and April.

Still, Marcus Corp. has long maintained a strong balance sheet which “has enabled us to weather numerous storms in the past and has positioned us well to weather the current crisis,” Greg Marcus, president and chief executive officer, said in a statement.

As of March 26, the company had a cash balance of $126.5 million, which reflects the borrowing of $220 million of its $225 million revolving credit arrangement.

Even if it faced the “very unlikely scenario” of keeping its theaters and hotels closed for the rest of 2020, Marcus said, the company has enough cash to operate without the new loan.

“With today's announcement, we have provided for an additional ‘insurance policy' to further enhance our liquidity, which we believe positions The Marcus Corporation to weather this current storm well into 2021, if needed,” he said.

Also, the company has the benefit of not only owning its hotels, but also the majority of its theaters “thereby reducing our monthly fixed lease payments,” Marcus said.

The company statement outlined other steps it has taken, including the use of benefits provided by the federal response to the pandemic's economic turmoil.

The Journal Sentinel on Monday reported that Marcus Hotels received Paycheck Protection Program forgivable loans for nine properties. Those include three upscale downtown Milwaukee hotels: the Hilton Milwaukee City Center, Pfister Hotel and Saint Kate – The Arts Hotel.

That federal cash, totaling $11 million, is being used to keep 1,400 to 1,500 employees on the company's payroll, Greg Marcus said.

The program was meant to mainly help small businesses. But it included a provision allowing larger hotel and restaurant chains to seek loans for individual locations.

That exception allows a company like Marcus Corp., which had around 10,500 employees at the end of 2019, to obtain help.

But larger companies have faced criticism for taking those loans – especially since the program quickly ran out of its first round of $349 billion. Congress and President Donald Trump last week approved $310 billion in additional funds.

The U.S. Small Business Administration also issued a new advisory saying the money should be returned by May 7 unless a company can prove it was truly eligible for a loan.

That process includes exploring private financing sources before turning to PPP.

Treasury Secretary Steve Mnuchin said Tuesday that federal loans exceeding $2 million would get a “full review.”

Mnuchin said it was “inappropriate” for corporations such as restaurant chains Shake Shack and Ruth's Chris Steak House, and sports franchises like the NBA's Los Angeles Lakers, to receive PPP cash.

Shake Shack, Ruth's Chris and the Lakers have returned the loans. Other larger companies have said they will be keeping the cash.

There was no immediate response Thursday from Marcus Corp. when asked if the company would be returning the PPP loans.

Greg Marcus on Monday told the Journal Sentinel that company wouldn't be able to provide paychecks to its hotel and restaurant employees without the federal help.

The PPP loans are forgivable if at least 75% of the money is spent on keeping or rehiring employees. The rest must be spent on business-related expenses such as rent or utilities.

Marcus said 90% of the loan proceeds are being spent on employee compensation.

Paychecks provided through PPP cover up to eight weeks.

USA Today contributed to this report.