New York, April 03, 2020 -- Moody's Investors Service ("Moody's") today affirmed Bojangles,
Inc. ("Bojangles") B3 Corporate Family Rating (CFR),
B3-PD Probability of Default Rating (PDR), B2 1st lien secured
bank facility and Caa2 2nd lien secured bank facility. The outlook
was changed to negative from stable.
"The negative outlook reflects the significant uncertainty surrounding
the potential length and severity of restaurant closures as a result of
the coronavirus pandemic and the ultimate impact that these closures will
have on Bojangles' revenues, earnings and liquidity."
stated Bill Fahy, Moody's Senior Credit Officer. "The outlook
also takes into account the negative impact on consumers ability and willingness
to spend on eating out until the crisis materially subsides," Fahy
added.
The affirmation of the B3 CFR reflects Bojangles' operations as a quick
service restaurant which historically have had a high reliance on drive-through
and pick up and the continuation of Bojangle's drive-through,
pick-up and curbside operations. The affirmation also reflects
Bojangles' adequate liquidity with about $80 million of cash,
following the full drawing of its revolving credit facilit. This
level of cash will allow the company to manage through several months
of significant revenue decline.Moody's expectation that Bojangles
will manage the business to preserve liquidity and then use cash flow
to reduce debt once the crisis subsides.
Affirmations:
..Issuer: Bojangles, Inc.
.... Probability of Default Rating,
Affirmed B3-PD
.... Corporate Family Rating, Affirmed
B3
....Senior Secured 1st Lien Bank Credit Facility,
Affirmed B2 (LGD3)
....Senior Secured 2nd Lien Bank Credit Facility,
Affirmed Caa2 (LGD5)
Outlook Actions:
..Issuer: Bojangles, Inc.
....Outlook, Changed To Negative From
Stable
RATINGS RATIONALE
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 restaurant 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 Bojangles credit profile, including its exposure
to widespread location restrictions and closures have left it vulnerable
to shifts in market sentiment in these unprecedented operating conditions
and Bojangles remains vulnerable to the outbreak continuing to spread.
We regard 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 of the breadth and severity of the
shock, and the broad deterioration in credit quality it has triggered.
Bojangles is constrained by its high leverage and modest interest coverage,
as well as difficult traffic trends, relatively small scale and
geographic concentration. In addition, a high level of competition
focused on value and cost pressures related to labor and commodities will
make it difficult to materially improve traffic and earnings over the
intermediate term. Bojangles benefits from strong brand awareness,
above average sales per restaurant in its core markets, good day-part
distribution and stable earnings contribution from franchised restaurants.
Governance is another rating constraint as Bojangles is owned by a private
equity firm. Financial strategies are always a key concern of private
equity companies given their higher leverage and potential for debt financed
returns to shareholders or more aggressive growth strategies. Restaurants
by their nature and relationship with sourcing food and packaging,
as well as an extensive labor force and constant consumer interaction
are deeply entwined with sustainability, social and environmental
concerns. With Bojangles product offering concentrated towards
chicken the company maintains a strict policy and procedural standards
for ensuring the quality and safety of its products. As part of
that commitment, Bojangles requires that all of its suppliers adhere
to specific guidelines related to how they source and deliver fresh high-quality
ingredients to its restaurants. While these factors may not directly
impact the credit, they impact brand image and result in a more
positive view of the brand overall.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
Factors that could result in a stable outlook include a clear plan and
time line for the lifting of restrictions on restaurants that result in
a sustained improvement in operating performance, liquidity and
credit metrics. Given the negative outlook an upgrade is unlikely
at the present time. However, a higher rating would require
debt to EBITDA below 5.5 times and EBIT coverage of gross interest
of about 1.75 and good liquidity.
Factors that could result in a downgrade include a longer than currently
anticipated period of restaurant restrictions or closures or a material
deterioration in liquidity. Ratings could also be downgraded in
the event that credit metrics remained weak despite a lifting of restrictions
on restaurants and a subsequent recovery in earnings and liquidity.
Specifically, ratings could be downgraded in the event debt to EBITDA
was over 6.5 times or EBIT to interest coverage was below 1.25
times on a sustained basis or if liquidity deteriorated for any reason.
Bojangles, with headquarters in Charlotte, NC, owns
and operates about 320 and franchises around 442 restaurants in 11 states
under the Bojangles brand name. Annual revenues are about $570
million, although systemwide sales are about $1.3
billion. The company is owned by private equity firms Durational
Capital Management and The Jordan Company.
The principal methodology used in these ratings was Restaurant Industry
published in January 2018 and available at https://www.moodys.com/research/Restaurant-Industry--PBC_1108012.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating outcome
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
William V. Fahy
VP - Senior Credit Officer
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
Margaret Taylor
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
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
