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Investing.com -- S&P Global Ratings has downgraded its issue-level rating on Papa John’s International (NASDAQ:PZZA) Inc.’s senior unsecured notes to ’B+’ from ’BB-’, while revising its recovery rating on the notes to ’5’ from ’4’. The changes reflect the pizza company’s increased secured debt following a recent $200 million secured term loan, according to the April 2, 2025 report by S&P.
On March 27, 2025, Papa John’s extended the maturity of its revolving credit facility to March 2030 and issued a $200 million senior secured term loan B. The company plans to use the proceeds from the term loan to pay down outstanding borrowings under its revolving credit facility. However, the increased level of secured debt leaves less value for its unsecured lenders in a hypothetical default scenario.
Despite the challenging macroeconomic environment, S&P’s rating continues to reflect expectations of a modest increase in Papa John’s sales and steady profitability through 2025. The company is expected to counter customer traffic headwinds with menu relevancy, value messaging, and enhanced convenience through delivery and digital channels. S&P projects that the company’s leverage will remain in the mid-3x area as it maintains steady EBITDA margins in the mid- to high-12% range and uses a portion of its free operating cash flow for debt-reduction initiatives over the next 12 months.
The recovery rating of ’5’ on the senior unsecured notes suggests a modest recovery (10%-30%; rounded estimate: 10%) in a hypothetical default scenario. In S&P’s simulated default scenario, a steep decline in Papa John’s revenue and EBITDA due to a distressed economic environment and a contraction in consumer discretionary income leads to a default in 2029. In this situation, the company would reorganize to maximize debtholders’ recoveries, with unsecured noteholders expected to receive a modest recovery due to a large draw (85% of the $600 million availability) under the higher priority cash flow revolver and $200 million of first-lien term loans.
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