Investing.com -- S&P Global Ratings has downgraded the long-term issuer credit rating of France-based restaurant company, Bertrand Franchise, to ’B-’ from ’B’. This downgrade comes after the company’s 2024 operating performance fell short of expectations, leading to a leverage above 8.0x and a negative free operating cash flow (FOCF) after leases of €45 million.

Bertrand Franchise’s operating performance in 2024 was affected by a challenging macroeconomic environment, weaker consumer confidence, and political instability. Despite an expansion of the store network and new brand additions, the company’s total revenue was €30 million lower than in 2023, standing at €980 million. The S&P Global Ratings-adjusted EBITDA also declined to €274 million with a margin of 27.9% down from 30.1% in 2023 due to these factors.

The company’s asset-light franchised model, however, is expected to support strong growth potential and higher than average profitability in the forecast period. The model allows Bertrand Franchise to expand rapidly in good locations and gain market share. The company is expected to open between 120-150 new stores per year in 2025-2026, while reducing the share of own stores and increasing that of franchises.

Bertrand Franchise is owned by a consortium of investors, including Bertrand Corp., Bridgepoint Group PLC, and United JVCO, a consortium of investors composed of Goldman Sachs Asset Management, L.P. and Alpinvest. The S&P Global Ratings-adjusted leverage is expected to remain above 6.5x excluding the preference shares (8.0x including them) over the next 24 months.

The FOCF after leases for the current year is expected to remain under pressure because of high capital expenditure (capex), but it should turn positive at about €10 million-€20 million in 2026. The company’s total adjusted debt equals about €2.7 billion at year-end 2025, including €917 million of lease liabilities, €112 million of put options on minority stakes, and the €458 million of preference shares.

Despite the downgrade, S&P Global Ratings maintains a stable outlook for Bertrand Franchise, expecting the company to increase its EBITDA through its expansion program, maintain adequate liquidity, and progressively reduce its leverage in the next 24 months. The ratings could be lowered if the company is unable to execute its growth strategy or if its operating performance remained subdued. Conversely, the ratings could be raised if Bertrand Franchise’s S&P Global Ratings-adjusted debt to EBITDA declines to about 6.0x excluding the preference shares and FOCF turns substantially positive.

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