Moody’s rates Fogo de Chao, facilities B2

Moody's Investors Service said it assigned a B2 corporate family rating and B2-PD probability of default rating to Prime Cut Merger Sub Inc. (acquirer of Fogo de Chao, Inc.).

The agency also assigned B2 ratings to the proposed $40 million senior secured revolving credit facility and $300 million senior secured first-lien term loan.

The outlook is stable.

Prime Cut Merger Sub is the initial borrower, and upon consummation of the transaction, Fogo de Chao will be the borrower under the credit facilities.

Proceeds from the proposed term loan, along with $281 million of common equity contributed by affiliates of Rhone Capital, will be used to fund the acquisition of Fogo de Chao, including refinancing about $92 million of existing outstanding net debt, pay $26 million in related financing fees and expenses, and put $5 million of cash on the balance sheet.

"The ratings reflect Fogo's small size and scale, as well as its high pro forma lease-adjusted leverage near 5.5x, following the acquisition by Rhone Capital," Moody's assistant vice president, analyst Adam McLaren said in a news release.

However, the agency said it expects credit metrics will improve from pro-forma levels as newly opened restaurants hit run rate earnings levels and the company focuses on debt reduction, while maintaining good liquidity.

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