S&P rates new El Pollo Loco notes B

Standard & Poor's said it assigned its B rating to quick-service restaurant operator El Pollo Loco Inc.'s proposed $110 million senior secured note offering.

The outlook is negative.

The senior secured notes are rated one notch below the corporate credit rating because of the relatively significant amount of priority debt ahead of the notes.

S&P said the ratings reflect the company's participation in the highly competitive quick-service sector of the restaurant industry, its small size and regional concentration, weak cash flow protection measures, and a highly leveraged capital structure.

These risks are partially offset by the company's established brand in California, especially among the Hispanic population.

S&P noted pro forma for the refinancing transaction, cash flow protection measures are weak, with lease-adjusted EBITDA interest coverage of about 2x and funds from operations to total debt of about 15%. Cash flow protection measures are highly variable due to the company's small EBITDA base of about $35 million. The company is highly leveraged, with lease-adjusted total debt to EBITDA approaching 5x.

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