Addressing reports of predicted loan default, the El Pollo Loco grilled chicken chain said Wednesday a new equity infusion from its parent company will enable it to pay in full a $10.6 million principal payment due in May.
A recent Bloomberg News report citing Standard & Poor’s said the Costa Mesa, Calif.-based El Pollo Loco was in danger of defaulting on an $11 million principal payment in May and a $14 million interest payment in June. As a result, Standard & Poor’s reduced the chain’s credit rating to CC, or junk status, the report said.
On Wednesday, the company said it intends to pay in full the mandatory principal redemption amount of its 14.5-percent senior discount notes due May 15.
The payment will be made with the help of a $9.8 million equity infusion from Chicken Acquisition Corp., or CAC, the company created when El Pollo Loco was acquired by Trimaran Capital Partners LLC in 2005, said Julie Weeks, El Pollo Loco’s vice president of communications.
“We indicated in filing our 10K that we could make the payment, and we can,” Weeks said. “This reinforces that. We’re taking it one at a time.”
Weeks said the company is intending to fully comply with the payment in June as well, which will be funded with a combination of existing cash flow and CAC funds.
In the statement Wednesday, Steve Sather, El Pollo Loco chief executive, said, “As the economy continues to show signs of recovery and our business stabilizes, we are energized by the momentum underway as we align our entire system around a brand revitalization platform that is focused on quality, service and cleanliness; craveable menu items anchored by our signature flame-grilled chicken; compelling advertising; and a systemwide restaurant redesign and remodel program.”
Despite the improving economy, El Pollo Loco has continued to suffer, in part because of what the company called disproportionately high unemployment and under-employment in core markets such as California. The unemployment rate in California was 12.5 percent in January 2011, compared with 9.4 percent nationally.
Striving to turn around declining sales, El Pollo Loco in recent months introduced a new line of side dishes, such as flame-grilled corn with chile-lime, sweet corn cakes, and sweet potato fries. The company also has hired a new advertising firm to realign its brand message.
For the year ended Dec. 29, El Pollo Loco reported a net loss of $39.5 million, compared with a loss of $52.3 million for the previous year. The 2010 loss included an income tax benefit of $10.5 million, compared with a tax provision of $15.6 million in fiscal 2009.
Revenue for the year, including sales at company-operated restaurants and franchise revenue, was $271.2 million, down 2.3 percent from $277.7 million in fiscal 2009. Systemwide same-store sales declined 4.3 percent in 2010, an improvement over the 8.2-percent drop in 2009.
The El Pollo Loco chain has 412 restaurants in 10 states, including 171 company-operated locations and 241 franchised units.
Contact Lisa Jennings at [email protected]