S&P rates Spanish Bondco 2 notes B

S&P said it assigned a preliminary B long-term issuer credit and issue ratings to Spanish Bondco 2, along with a B rating on the proposed €335 million senior secured notes with a fixed coupon and due in 2026.

The recovery rating on the notes is 3, although the expected default recovery will be at the low end of the recovery range at 50%, the agency noted.

Private equity fund KKR is planning to acquire a majority ownership stake in Tele Pizza SAU through a new holding company Spanish Bondco 2, S&P said.

Telepizza recently also entered into a master franchise agreement with Yum! for all Pizza Hut stores in Iberia, Latin America, excluding Brazil, and Switzerland, the agency said.

The transaction will be partly funded through a €335 million senior secured notes offering issued by investment vehicle Spanish Bondco 1, which is planned to be merged with Spanish Bondco 2 at a later stage, S&P said.

The ratings reflect the enlarged scale of the overall Telepizza system and broad earnings diversification across nearly 39 countries, the agency said, along with its integrated business model.

The ratings are constrained by substantial execution risk related to integrating Pizza Hut sites into the system and extracting target synergies, S&P said.

The stable outlook reflects expectations that Telepizza will execute its challenging business plan as master franchisee by integrating the Pizza Hut stores, extracting synergies and implementing a very large investment plan, leading to very modest free operating cash flow, S&P said.

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