S&P: Portillo loans B-, CCC

Standard & Poor’s said it assigned a B- corporate credit rating to Portillo’s Holdings LLC, along with a B- rating to the company’s $345 million first-lien facility, consisting of a $30 million revolver and $315 million first-lien term loan.

The recovery rating is 3, indicating 50% to 70% expected default recovery.

The agency also said it assigned a CCC rating with a 6 recovery to the company’s second-lien facility, indicating negligible (0% to 10%) expected default recovery.

The outlook is stable.

The proceeds will be used to purchase Portillo’s and pay related fees and expenses with $10 million of the revolver drawn at close.

S&P said it understands a third party plans to invest in the company through an unrated $100 million 12-year 11% payment-in-kind preferred equity stake, which will reduce Berkshire’s common equity contribution toward the purchase price.

The ratings reflect its niche focus on hot dogs and other offerings mainly in the Chicago area with 38 locations that include both dine-in and drive-thru offerings, the agency said, as well as a catering and delivery business.

There are substantial risks associated with Berkshire Partners’ plans to steadily grow the business beyond the Midwest at a faster rate than the company has historically experienced, S&P said.

Portillo’s is a largely unknown brand outside its current geographies and requires sizable upfront capital investments to support its large boxes, high-quality menu and valued customer service, the agency said.

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