Portillo’s debt ratings hit after Berkshire takes $116 mln dividend

  • Berkshire invested in restaurant chain in 2014
  • S&P cuts rating after company issues $96 mln in fresh debt
  • Adjusted debt-to-EBITDA multiple up to 10.2x

A move by Berkshire Partners to add more debt to its Portillo’s restaurant chain to fund a $116 million dividend payment raised some warning flags from research firm S&P Global Ratings.

Portillo’s, which issues debt under the name PHD Group, hiked its adjusted debt-to-EBITDA multiple to 10.2x from 8.9x, S&P Global Ratings said in an Oct. 5 note.

The Oak Brook, Ill, casual eatery company issued a $96 million add-on to its first- and second-lien facilities, plus $20 million to fund the dividend to Berkshire Partners.

The additional debt will reduce PHD Group’s financial flexibility and could strain the company’s capital structure if operating performance weakens in the coming year,” analyst Declan Gargan said in a research note.

He kept the firm’s rating of B- for its corporate credit but cut his outlook on the company to negative from stable. A B rating means the company is more vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments, according to S&P’s definitions.

‘The negative outlook reflects the financial sponsors’ continued aggressive financial policy of maximizing its distributions while executing on an aggressive growth plan to offset higher leverage,” Gargan said.

“It also incorporates the execution risks associated with Portillo’s accelerated growth and expansion into new markets.”

Neither Portillo’s nor Berkshire responded to a request for comment.

Berkshire Partners, the Boston buyout firm, bought Portillo’s in 2014. Terms weren’t disclosed.

Action Item: Information on Portillo’s: www.berkshirepartners.com/portillo’s

U.S. Republican presidential candidate John Kasich (right) has lunch with Portillo’s CEO Keith Kinsey at a campaign event in Chicago on Sept. 29, 2015. Photo courtesy Reuters/Jim Young