S&P rates California Pizza loans B, CCC

S&P said it affirmed its corporate credit rating on California Pizza Kitchen Inc. (CPK) at B- and revised the outlook to stable from negative.

At the same time, the agency assigned a B issue-level rating to the company’s new senior secured first-lien credit facility, which consists of a $30 million revolver and $290 million term loan. The recovery rating is 2, indicating expectations for substantial recovery in the event of default, at the low end of the 70% to 90% range.

S&P also assigned a CCC issue-level rating to California Pizza’s new senior secured second-lien $75 million term loan. The recovery rating is 6, indicating expectations for negligible (0% to 10%) recovery.

The agency will withdraw the ratings on existing credit facilities once the new facilities close.

"The rating reflects our view that CPK's recently completed comprehensive remodeling program that modernized both the décor and menu is slowly starting to gain traction with customers. Private equity sponsor Golden Gate Capital has owned CPK since 2011 and the company has been focusing on improving gross and EBITDA margins through cost-saving initiatives targeting food and labor, choosing attractive locations for new restaurants, investing in marketing, and gradually increasing menu pricing," S&P credit analyst Olya Naumova said in a news release.

"As a result, EBITDA margin expanded by 80 basis points (bps) to 17.6% in the first quarter of 2016 from 2015 levels and the FFO to debt ratio improved to 13.7%."

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