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02 Jun 2010
Approximately $270 million rated debt securities affected
New York, June 02, 2010 -- Moody's Investors Service today downgraded El Pollo Loco, Inc.'s
(El Pollo) Corporate Family Rating (CFR) and Probability of Default Rating
(PDR) to Caa2 from Caa1, the rating on the senior secured notes
due 2012 to B3 from B2 and the rating of the unsecured notes due 2013
to Caa3 from Caa2. The rating outlook remains negative.
Concurrently, Moody's lowered the speculative grade liquidity
(SGL) rating to SGL-4 from SGL-3.
"Today's rating action reflects El Pollo's weakening
liquidity and increased default probability," commented Moody's
analyst John Zhao. "Our concern is that the company's
capital structure may not be sustainable in its current form absent a
The Caa2 CFR and negative outlook incorporate El Pollo's eroded
liquidity and continued weak operating performance. The company
has significant cash interest and principal payment requirements in the
coming twelve months, which would not likely be sufficiently covered
by its internally generated cash flow, cash balance and other liquidity
sources per Moody's estimate. Particularly, the company
would likely face significant challenges in satisfying the mandatory principal
redemption and cash interest payment both due in May 2011 for the unrated
2014 unsecured notes at its holding company. Additionally,
the rating reflects El Pollo's struggle with the negative same store
sales (SSS) trend that worsened in 2009. The weak performance was
further exacerbated by its unit concentration in California where the
economic conditions and employment situation remain depressed.
The increased competition especially from KFC which is owned by much larger
and financially stronger Yum Brands (rated Baa3 by Moody's) also
magnified the topline pressure. Moody's expects El Pollo's
operating performance to remain weak in the near-to-medium
The current Caa2 rating could be further downgraded should an event of
default occur or capital structure change that would result in significant
losses for debt holders. Positive rating pressure will not develop
until the company has fully addressed the debt service issue with its
unsecured notes and proved its capital structure to be sustainable longer
The rating action is as follows:
- Corporate family rating to Caa2 from Caa1
- Probability of default rating to Caa2 from Caa1
-$132.5 million 2nd lien senior secured notes due
2012, to B3 (LGD2, 24%) from B2 (LGD2, 25%)
-$125 million ($106.5 million outstanding)
senior unsecured notes due 2013, to Caa3 (LGD5, 75%)
from Caa2 (LGD5, 70%)
-Speculative Grade Liquidity Rating, to SGL-4 from
$12.5 million 1st lien senior secured revolving credit facility
due 2012 at (B1, LGD1, 1%)
Rating outlook: negative
Moody's last rating action on El Pollo occurred on June 3,
2010 when the SGL was raised to SGL-3 from SGL-4.
For more information on this company, please refer to an updated
credit opinion on moodys.com.
The principal methodology used in rating El Pollo 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.
El Pollo Loco Inc, headquartered in Costa Mesa, California,
is a quick-service restaurant chain specializing in flame-grilled
chicken and other Mexican-inspired entrees. The company
operates or franchises approximately 412 restaurants primarily around
Los Angeles and throughout Southwestern US, and generated total
revenues of approximately $275 million in the last twelve months
ended March 31, 2010.
Corporate Finance Group
Moody's Investors Service
Kendra M. Smith
Corporate Finance Group
Moody's Investors Service
Moody's downgrades El Pollo Loco's CFR (to Caa2) and SGL (to SGL-4)
No Related Data.
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