Orange County Business Journal

S&P's Slight Upgrade "Temporary Respite" for Real Mex

Kari Hamanaka Monday, August 8, 2011

Standard & Poor’s Financial Services LLC raised Real Mex Restaurants Inc.’s rating to CC from D but said the outlook remains negative on lingering concerns about the company’s cash flow.

The upgrade, made Friday, comes after the Cypress-based restaurant operator confirmed it had made a $9.2 million interest payment July 28.

The payment, which was due July 1, was made within the 30-day grace period. It’s part of a $130 million bond set to mature in 2013.

Standard & Poor’s said its outlook on the company remains negative despite the upgrade.

“In our view, making the interest payment is only a temporary respite from the company’s financial difficulties,” said Standard & Poor’s credit analyst Andy Sookram in a statement.

The ratings agency reiterated a position it took last month, when it raised the possibility of a Chapter 11 bankruptcy filing or separate debt restructuring for Real Mex.

Real Mex operates 177 restaurants and has 22 franchised restaurants under brands such as El Torito, Acapulco, Chevys and others.

The company also operates a food manufacturing and distribution subsidiary called Real Mex Foods.

Concerns about the company's ability to make its debt payments were raised during a May call with investors and a quarterly report filed that same month with the Securities and Exchange Commission.

Real Mex has looked to restaurant promotions and new marketing in an effort to boost sales this year.

The company reported a first-quarter loss of $6.2 million, widened from a $5.5 million loss a year earlier.

Standard & Poor's and Moody’s Investors Service Inc., also of New York, lowered Real Mex's corporate credit rating last month following the late payment.

Moody's has not changed its earlier rating.