Moody's lifts Sbarro loans

Moody's Investors Service said it upgraded Sbarro, Inc.'s $21.5 million senior secured revolving credit facility and $183 million senior secured term loan to Caa1 (LGD2, 17%) from Caa2 (LGD2, 21%) and affirmed its other ratings, including the Ca corporate family and probability-of-default ratings, C (LGD5, 77%) $150 million senior unsecured notes and SGL-4 speculative-grade liquidity rating.

The outlook is negative.

The agency said the upgrade of the loans reflects the establishment earlier this year of Sbarro's second-lien senior secured term loan. This resulted in a higher level of liabilities that are junior to the upgraded loans and provides the first-lien revolver and term loan lenders with a greater level of support in a distressed situation.

Sbarro's Ca corporate family rating reflects the company's persistently high leverage and weak coverage, the significant competition in the pizza segment of the restaurant industry, the high seasonality of cash flows and the agency's view that operating performance at Sbarro will continue to be negatively impacted by weak consumer spending, Moody's said.

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