Leveraged Loans: Centerbridge-backed P.F. Chang’s outlook stays negative at S&P

  • Outlook cut on small scale, leverage, weak mall traffic
  • B- corporate-credit rating affirmed
  • Revised covenants boost S&P’s view of liquidity

S&P Global Ratings maintained a negative outlook on Centerbridge Partners-backed P.F. Chang’s China Bistro, citing factors including the restaurant chain’s leverage, small scale and “exposure to declining mall traffic.”

Analyst Mathew Christy in New York also expects lower customer traffic and spending industrywide, prompting negative comparable sales at P.F. Chang’s in the next year.

Adjusted leverage “will remain in the high-5x to low-6x range for the next 12-18 months,” the analyst estimated.

Christy affirmed his B- corporate-credit rating on the Scottsdale, Arizona, chain. Centerbridge acquired P.F. Chang’s in 2012 in a $1.1 billion deal.

The moves come as P.F. Chang’s plans to refinance its senior secured first-lien term loan with a senior secured facility that includes a $55 million revolving-credit line and a $325 million first-lien term loan maturing in 2022.

“The new credit facilities have revised, looser financial maintenance covenants,” S&P said.

In an Aug. 4 report, S&P also assigned a B- issue-level rating to the proposed $380 million senior secured facility. And it affirmed a CCC issue-level rating on the company’s $300 million of senior unsecured notes.

P.F. Chang’s “operations, especially at the Pei Wei [division], will remain challenged in the current difficult operating environment for restaurants, though we have a more favorable view of its liquidity following the covenant revisions,” Christy wrote.

An outlook upgrade would require sustained positive comparable-sales growth and fatter operating margins at both P.F. Chang’s and Pei Wei, Christy wrote. In such a scenario he’ll be looking for adjusted leverage around the mid-5x range.

On the other hand, a rating downgrade might be prompted if the company’s liquidity profile weakens or if the company underperforms and prompts S&P to conclude that the parent can’t sustain its capital structure long term. In a situation like this, Christy said, adjusted leverage would be 6.5x or more.

Neither P.F. Chang’s nor Centerbridge could be reached for comment.

Action Item: Reach the analyst: +1 212-438-7786 or mathew.christy@spglobal.com

The P.F. Chang’s restaurant in Hackensack, New Jersey, on Aug. 12, 2017. Photo by Robert Daniel, Buyouts.