Moody's rates Red Lobster loans B3

Moody's Investors Service said it assigned a B3 corporate family rating and a B3-PD probability of default rating to Red Lobster Management, LLC and B3 (LGD4) ratings to its proposed $50 million guaranteed senior secured revolving credit facility and $375 million guaranteed senior secured term loan. The outlook is stable.

Proceeds from the proposed credit facilities and a minimum of $200 million of cash common equity contributed by Golden Gate Capital Management will be used to fund a portion the acquisition of the Red Lobster brand and operations from Darden Restaurants, Inc. (Baa3/review for downgrade). In a separate but related transaction, the substantial majority of the physical real estate assets of Red Lobster will be sold by Darden to American Realty Capital Properties, Inc. (Baa3/stable), and Red Lobster will lease back the real estate.

The agency said the B3 corporate family rating reflects Red Lobster's weak and declining operating performance, high ratio of pro forma lease-adjusted debt to EBITDA of about 6 times and the challenge surrounding Golden Gate's ability to turn the company's performance around.

Positive rating consideration is given to Golden Gate's experience with respect to buying and addressing underperforming restaurant and other consumer related companies, along with the company's pro forma liquidity profile that includes $125 million of unrestricted cash and a $50 million undrawn revolver, Moody’s said.

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