Tacala LLC

The stable outlook reflects our expectations for relatively stable credit metrics over the next 12 months, with S&P Global Ratings-adjusted debt to EBITDA sustained above 6x in 2022. We expect modest EBITDA expansion through net unit and same-store sales growth, partially offset by moderating profitability as operating costs normalize over the next 12 months. We also anticipate consistent free operating cash flow (FOCF) generation in the $20 million to $30 million range. We could lower the rating if we believe Tacala's capital structure is unsustainable as a result of deteriorating performance. For example, this could occur if the company generates consistently negative FOCF as a result of elevated commodity and labor costs and declining same-store sales. We could raise the

...We expect Tacala LLC to demonstrate generally consistent operating performance over the next 12 to 18 months. Tacala performed well during the pandemic and has had positive same store sales for the last three quarters. Third-quarter (ended Sept. 7, 2021) same-store sales were up 2.1% despite a spike in the delta variant in the south resulting in limited operating hours. We believe quick-service restaurants (QSRs) have been well positioned for the pandemic owing to their drive-thru channel, which is conducive to social distancing and crowd-avoidance practices. The improvement in sales also reflects increased average check sizes from more kiosk and mobile app use, as customers order more food, try new items, and customize orders. We believe these trends will continue through 2022 and we forecast Tacala's sales to grow 6%-7% in 2021, reflecting the benefits from same-store sales growth, new store development, and store remodels. Increased commodity and labor costs could pressure margins in...

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