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Moody’s Upgrades Restaurant Holding Co.

By on March 1, 2016

SAN JUAN – Moody’s Investors Service upgraded Tuesday the ratings of Restaurant Holding Co. (RHC), including its Corporate Family Rating (CFR) to Caa1 from Caa2 and Probability of Default Rating (PDR) to Caa1-PD from Caa2-PD. It also upgraded the company’s $145 million senior secured term loan and $10 million senior secured revolver to B3 from Caa1. RHC’s $50 million 2nd lien term loan is affirmed at Caa3. The outlook is stable.

The rating action reflects RHC’s “improved earnings performance and lower debt to EBITDA [earnings before interest, taxes, depreciation and amortization] (to 6.0 times from 6.7 times) driven by consumer demand for its core products and lower operating costs both of which were driven in large part by lower gasoline prices as well as commodity deflation.

RHC is owned by BHK Acquisition Corp., which in turn, is majority-owned by Castle Harlan Partners, a private equity firm that purchased the company in 2004. Through its subsidiary – Caribbean Restaurants LLC – RHC has an exclusive territorial development agreement with Burger King Corp., which makes RHC the sole franchisee of Burger King restaurants in Puerto Rico with approximately 178 units as of Oct. 31, 2015. RHC is also the immediate parent company of Latin American Subs LLC, which is the master franchisee of Firehouse Subs in Puerto Rico. There are currently 12 Firehouse Subs restaurants operating in Puerto Rico. RHC is a private company and as such, does not file public financials. Annual revenues are approximately $270 million in total revenues.

“The Caa1 CFR reflects RHC’s high leverage and weak interest coverage in addition to its sole reliance on the recessionary climate of Puerto Rico which has limited its ability to generate a material improvement in earnings,” Moody’s said, adding, “The rating is supported by the company’s leading position in the Puerto Rico QSR segment as a result of its exclusive development agreement within Puerto Rico, the strength of the Burger King brand and adequate liquidity.”

The stable outlook reflects Moody’s view that credit metrics will remain around current levels and that liquidity will remain adequate over the next twelve months.

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