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Rating Action:

Moody's assigns (P)B1 to Sagittarius's proposed bank debt

04 May 2010

New York, May 04, 2010 -- Moody's Investors Service today assigned a provisional(P)B1 rating to Sagittarius Restaurant LLC's (Sagittarius) proposed $195 million senior secured credit facilities to be issued to partly refinance its existing bank debt as part of its balance sheet recapitalization. The assigned rating is subject to the receipt and review of final documents and closing of a proposed refinancing transaction. The company's Caa2 Corporate Family Rating and Probability of Default Rating, remain under review for possible upgrade.

The proceeds from the proposed issuance, along with proceeds from potential asset sale and cash equity infusion will be used to refinance its existing senior secured credit facilities, and pay fees and expenses related to the transaction. The new credit facilities are comprised of a $35 million revolving credit facility and a $160 million term loan, both will mature in 2015. The facilities will be secured on a first lien basis by substantially all assets and stocks of the borrower, and guaranteed by parent and direct and indirect subsidiaries. The refinancing and debt restructuring are expected to reduce a significant portion of the company's outstanding claims per an exchange agreement executed earlier, in addition to moving $40 million subordinated debt to a holding company.

The review for possible upgrade will focus on the company's ability to successfully complete the refinancing and restructuring. Should the transactions close as proposed, Moody's expects to raise the company's CFR to Caa1 with a stable outlook, and remove the provisional (P) indicator on the new credit facilities and assign a B1 rating to the facilities.

The rating action is as follows:

Rating assigned:

$195 million 5-year senior secured credit facilities -- (P) B1 (LGD2, 24%)

The following ratings remain unchanged:

Corporate Family Rating -- Caa2 and under review for possible upgrade

Probability of Default Rating -- Caa2 and under review for possible upgrade

$60 million senior secured revolving credit facility due 2012 at B2 (LGD2, 21%)

$265 million ($258.5 million outstanding at the end of 2009) senior secured term loan credit facility due 2013 at B2 (LGD2, 21%)

Moody's last rating action occurred on April 29, 2010 when Sagittarius' CFR was placed under review for possible upgrade while its probability of default rating was revised to Caa2/LD to indicate a limited default on the unrated Subordinated notes.

The continuation of review for possible upgrade for the CFR and PDR reflects the potential positive impact from the proposed recapitalization which aims to reduce its existing funded debt by nearly 40%, thus to improve capital structure and liquidity. Sagittarius' debt/EBITDA, proforma for the refinancing and debt exchange, would improve to approximately 6.0x from around 8.0x, and EBIT/Interest would also rise to above 1.0x from the actual 0.7x as of December 2009. In addition, a timely completion of the refinancing would substantially reduce the imminent default risk arising from a potential covenant default and/or payment default that would likely occur as early as the end of 2nd quarter of this year absent the transactions.

The review is also consistent with Moody's view that Del Taco's operating performance, on a standalone basis, is expected to be stable in the coming year and the divestiture of the Captain D's should improve Sagittarius' business profile, considering Del Taco's much stronger operating margin and greater growth potential. Conversely, the review also incorporates the still high leverage post transaction, potential execution risk associated with the sale of Captain D's, as well as the impact from commodity inflation considering the prices of some major food input items, such as meat and cheese, are on the rise. In addition, Moody's expects the operating environment will remain challenging, particularly in California where almost 70% of its total units are located. Also, Del Taco needs to demonstrate it can effectively execute its development plan which is currently constrained by its capital structure and more restrictive financing available to potential franchisees.

The principal methodology used in rating Sagittarius was Moody's Global Restaurant Industry Methodology, published in June 2008 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Sagittarius Restaurants LLC, headquartered in Nashville, Tennessee, operates and franchises Mexican and seafood QSRs under two leading brand names, Del Taco and Captain D's. The company had 1,056 units in 31 states at the end of December 2009.

New York
Glenn B. Eckert
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Zhenyu Zhao
Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns (P)B1 to Sagittarius's proposed bank debt
No Related Data.
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