New York, April 20, 2020 -- Moody's Investors Service, ("Moody's") affirmed
Restaurant Technologies, Inc.'s (Restaurant Technologies)
ratings including its Corporate Family Rating (CFR) at B2, and its
Probability of Default Rating (PDR) at B2-PD. Moody's
also affirmed the ratings on the company's senior secured first
lien credit facilities at B1, including its $60 million senior
secured first lien revolver due 2023 and $400 million senior secured
first lien term loan due 2025, and the rating on its $100
million senior secured second lien term loan due 2026 at Caa1.
The outlook was changed to negative from stable.
The outlook change to negative reflects the company's high financial
leverage amid restaurant closures and reduced operations as a response
to the coronavirus pandemic, and the uncertainty around the duration
of the outbreak and pace of re-openings and volume recovery once
the pandemic subsides. Almost all US states have canceled on-premise
dining resulting in restaurant closures and reduced traffic in restaurants
that remain open, which will negatively impact oil volumes at least
through the current coronavirus outbreak. Given the anticipated
decline in sales and earnings, Moody's expects financial leverage
to increase above 7.0x debt/EBITDA over the next 6-12 months,
and for free cash flow generation to weaken in fiscal 2020.
Moody's affirmed Restaurant Technologies' ratings because
the company continues to generate material revenue from QSRs (quick service
restaurants) and retail/grocery customers, which remain open and
are experiencing lower oil volume declines than other foodservice customers.
The company's significant recurring revenue stream from oil delivery
and service fees also helps support earnings during temporary restaurant
closures, and Moody's expects the company will reduce costs
including labor utilization in response to lower volumes. A resumption
of on-premise dining and increased restaurant traffic would provide
the company an ability to reduce leverage and debt taken on to cover the
cash burn experienced during restaurant closures.
Affirmations:
..Issuer: Restaurant Technologies, Inc.
.... Probability of Default Rating,
Affirmed B2-PD
.... Corporate Family Rating, Affirmed
B2
....Senior Secured First Lien Bank Credit
Facility (Revolver and Term Loan), Affirmed B1 (LGD3)
....Senior Secured Second Lien Bank Credit
Facility Term Loan, Affirmed Caa1 (LGD6)
Outlook Actions:
..Issuer: Restaurant Technologies, Inc.
....Outlook, Changed To Negative From
Stable
RATINGS RATIONALE
Restaurant Technologies' B2 CFR reflects its relatively small scale
with annual revenue under $500 million (net revenue of around $209
million excluding oil passthrough), and its high financial leverage
with debt/EBITDA at around 6.8x for the twelve months period ending
September 30, 2019 and pro forma for the annual impact of new installations.
The credit profile benefits from signed customer backlog, and customer
pricing increases expected to be realized over the next twelve months
. Moody's expects that restaurant closures and reduced operations
as a result of the coronavirus pandemic will negatively impact oil volumes
at least through the current outbreak, resulting in debt/EBITDA
increasing to above 7.0x over the next 6-12 months.
The company has end market concentration in the foodservice/restaurant
sector, high customer concentration with McDonald's,
and some commodity exposure related to sales of used cooking oil.
The company's adequate liquidity reflects Moody's expectations
for limited free cash flows over the next 12-18 months because
of significant interest expense burden and substantial capital expenditures
associated with new customer installations. Governance factors
include the company's aggressive financial policies under private equity
ownership, highlighted by high financial leverage.
The rating also reflects Restaurant Technologies' leading market
position in the closed-loop oil solutions industry, its deep
entrenchment in customers' cooking oil supply chains, the high proportion
of recurring revenue driven by delivery and service fees embedded in customer
contracts, and its high customer retention rates. The company
benefits from its first mover advantage in the market in conjunction with
its healthy geographic footprint servicing most major metropolitan areas.
Moody's expects the healthy backlog of new customer installations,
and the continued ramp up of the company's AutoMist product, will
support revenues and earnings over the next 12-18 months.
The rapid and widening spread of the coronavirus outbreak, deteriorating
global economic outlook, falling oil prices, and asset price
declines are creating a severe and extensive credit shock across many
sectors, regions and markets. The combined credit effects
of these developments are unprecedented. The foodservice sector
has been one of the sectors most significantly affected by the shock given
its sensitivity to consumer demand and sentiment. More specifically,
the weaknesses in Restaurant Technologies' credit profile, including
its exposure to foodservice/restaurants, have left it vulnerable
to shifts in market sentiment in these unprecedented operating conditions
and the company remains vulnerable to the outbreak continuing to spread.
Moody's regards the coronavirus outbreak as a social risk under our ESG
framework, given the substantial implications for public health
and safety. Today's action reflects the impact on Restaurant Technologies
of the breadth and severity of the shock, and the broad deterioration
in credit quality it has triggered.
The negative outlook reflects the company's high financial leverage and
further downside pressure on the CFR if sales materially decline as a
result of prolonged restaurant closures, or reduced restaurant operations.
The negative outlook also reflects the uncertainty around the duration
of social distancing measures and the pace of re-openings and volume
recovery once the coronavirus pandemic subsides.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Ratings could be upgraded if the company grows its revenue scale,
sustains debt/EBITDA below 5.5x, and sustains EBITA/interest
above 2.0x. A ratings upgrade would also require good liquidity
highlighted by consistent positive free cash flow generation. Ratings
could be downgraded if operating performance deteriorates beyond Moody's
expectations, if debt/EBITDA is sustained above 7.0x,
or EBITA/interest is below 1.0x, or if liquidity weakens
for any reason, including higher reliance on revolver borrowings.
Headquartered in Mendota Heights, Minnesota, Restaurant Technologies,
Inc. operates as a closed-loop cooking oil distributor for
quick service and casual dining restaurants, grocery stores,
and hospitality customers. The company was acquired in 2018 by
private equity firm West Street Infrastructure Partners (Sponsor).
The company is private and does not publicly disclose its financials.
Restaurant Technologies, Inc. generated net revenue of $209
million, excluding oil passthrough, for the twelve month period
ended September 30, 2019.
The principal methodology used in these ratings was Business and Consumer
Service Industry published in October 2016 and available at https://www.moodys.com/research/Business-and-Consumer-Service-Industry--PBC_1037985.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
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sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
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issued by one of Moody's affiliates outside the EU and is endorsed
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am Main 60322, Germany, in accordance with Art.4 paragraph
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Oliver Alcantara
Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
John E. Puchalla, CFA
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
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JOURNALISTS: 1 212 553 0376
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