Moody’s assigns Zaxby’s B3

Moody’s Investors Service said it assigned Zaxby’s Operating Co. LP first-time ratings, including a B3 corporate family rating and a B3-PD probability of default rating. Also, Moody’s assigned a B2 rating to Zaxbys’ proposed $100 million first-lien revolving credit facility and $625 million first-lien senior secured term loan as well as a Caa2 rating to the company’s proposed $250 million second-lien senior secured term loan.

Proceeds and common equity contributed by funds affiliated with Goldman Sachs Merchant Banking Division will be used to fund the leveraged buyout of Zaxby’s.

“The ratings reflect governance considerations particularly aggressive financial strategies given Zaxby’s high leverage pro forma for its acquisition with leverage of over seven times for the LTM period ending Sept. 30, 2020, as well as its relatively small scale, more narrow product focus and geographic concentration,” said Bill Fahy, a Moody’s senior credit officer, in a press release.

“However, the ratings also reflect Zaxby’s strong brand awareness in its core markets, a business model that supported its ability to quickly shift to entirely off-premise dining, good day-part and weekly distribution, a material equity component to partially finance the acquisition and good liquidity,” said Fahy.

The outlook is stable. The outlook reflects the view leverage will gradually improve as various costs saving and operational initiatives are implemented and gain traction, new restaurants are added and management focuses on debt reduction over and above mandatory amortization, the agency said.

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