Moody's cuts Fogo De Chao

Moody's Investors Service said it downgraded Fogo De Chao, Inc.'s corporate family rating to B3 from B2, its probability of default rating to B3-PD from B2-PD and its B2 senior secured bank facilities rating to B3 from B2. The outlook was changed to negative from stable.

The downgrade considers the mandated closure of in-store dining units across the restaurant industry due to efforts to contain the spread of the coronavirus. As a principally dine-in and group restaurant, Fogo will have difficulty covering all fixed costs during the shut-down, the duration of which is currently unknown.

Fogo will offer some take-out options that will provide some cash flow support. Due to the anticipated decline in EBITDA, debt/EBITDA is expected to increase above Moody's downgrade trigger of 6x from approximately 5.4x as of the last 12 months ended September 2019 and EBIT/interest will deteriorate toward 1x.

The negative outlook reflects uncertainty around the duration of unit closures and pace of the rebound once the pandemic begins to subside.

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