Moody's rates AFC loan B1

Moody's Investors Service said it assigned a rating of B1 to the proposed $250 million bank loan of AFC Enterprises, confirmed all other ratings at existing levels and assigned a positive outlook.

New bank loan borrowings, together with proceeds from the recent sale of Church's to Cajun Funding Corp. (senior implied rating of B2), principally will be used to make a sizable shareholder transaction and to repay the balance of the existing bank loan.

Moody's said that negatively impacting the company's ratings are the challenges in monitoring a far-flung franchisee network and the challenges in competing against several solid quick service restaurant operators as the company expands its offering beyond bone-in chicken.

In spite of the substantial debt, the steadiness of royalty receipts from the diverse network of franchisees and Moody's expectation that a meaningful free cash flow surplus will consistently be generated prompt the belief that ratings could go up over the medium term.

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