Wall Street Favorite Del Frisco’s Steakhouse Faces Loan Pushback
Wagyu beef steaks are seared inside the kitchen at a members only restaurant in Tokyo, Japan. (Photographer: Shiho Fukada/Bloomberg)

Wall Street Favorite Del Frisco’s Steakhouse Faces Loan Pushback

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(Bloomberg) -- Del Frisco’s Double Eagle Steakhouse may be a favored dining spot for people who work on Wall Street, but the restaurant chain’s leveraged loan isn’t proving to be as appetizing to investors.

The company is looking to borrow $425 million as part of private equity firm L Catterton’s buyout of Del Frisco’s Restaurant Group. The sale is being led by Credit Suisse Group AG, and the company is offering an all-in yield of 9.6% to investors.

The proposed pricing of 700 basis points over Libor and a new issue discount of 97 is higher than the average rate for a newly issued leveraged loan in recent months. Nonetheless, investor interest has been lackluster, according to people familiar with the matter. As a result, Del Frisco’s may have to adjust pricing on the deal so it can attract more buyers.

The deal is emblematic of growing concerns leveraged loan investors have about a potential recession. Despite solid economic growth and corporate earnings, investors are wary of higher-risk credits, prompting them to take a more defensive posture. Del Frisco’s loan is rated B3 by Moody’s Investors Service and B- by S&P Global Ratings, six levels below investment grade.

Representatives for Credit Suisse and L Catterton declined to comment.

The B3 rating for Del Frisco’s, borrowing as Harlan Merger Sub, “reflects Harlan’s high leverage and weak interest coverage as well as its modest scale and geographic concentration,” Moody’s senior credit officer Bill Fahy said in a report.

Moody’s sees leverage at around 8 times debt. S&P sees adjusted leverage in the 7 times to 7.5 times range, which is high compared to its restaurant peers. The industry segment is also a concern since consumers tightening their belts during a slowdown may reduce discretionary spending -- which includes high-end steakhouses and wine bars.

On the plus side, Del Frisco’s weathered the last recession fairly well. The company managed to keep Ebitda steady even as revenue slipped in 2008-2009, according to a person close to the deal who asked not to be identified discussing private information.

That isn’t keeping investors from expecting a better price. When Del Frisco’s last tapped the loan market last year, the company increased the original issue discount to 95 from an earlier proposed 99.

©2019 Bloomberg L.P.

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