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Moody’s debtor list elicits spirited responses from affected chains

Moody’s debtor list elicits spirited responses from affected chains

Several restaurant companies are discounting their inclusion on the Moody’s Investors Services’ “Bottom Rung” list, which designated firms the debt rating agency says hold the highest risk of default.

Moody’s released its Bottom Rung list March 10, highlighting 283 companies from the 2,055 companies it covers in all industry segments. Moody’s said the companies listed face the greatest risk of default because they hold large amounts of leverage and have limited access to cash. It will update the list monthly, it added.

Some of the listed restaurant companies were quick to point out, however, that the list offers no new insight into their financial status. Indeed, since the summer of last year many in the restaurant industry have suffered from the double whammy of slowed sales and high levels of debt. The combination makes covenant compliance or loan repayment difficult. Even more, because of the frozen credit markets, refinancing options have become scarce.

Among the restaurant companies on Moody’s list are: Arby’s Restaurant Group, which is owned by Wendy’s/Arby’s Group; El Pollo Loco Inc.; OSI Restaurant Partners, parent of the Outback Steakhouse chain; Perkins & Marie Callender’s Inc.; Rare Restaurant Group, parent to the Mastro’s steak and seafood brand; Real Mex Restaurants Inc., parent of the Chevy’s and El Torito chains; Sagittarius Restaurants LLC, parent of the Del Taco and Captain D’s brands; and Sbarro Inc.

The list also included gaming companies, such as Harrah’s Entertainment Inc. and Golden Nugget Inc., a division of Landry’s Restaurants Inc., as well as amusement park properties such as Six Flags Inc., which reports have said risks bankruptcy as a $287 million payment is due in August.

Following the list’s release, Paul Murphy, chairman and chief executive of Sagittarius’ Del Taco division, said: “Moody’s has not changed its existing rating on Sagittarius’ debt. It has included Sagittarius, Del Taco’s parent company, among a lengthy list of borrowers—most companies that have broad exposure to significantly weaker consumer spending in the United States—that it is publishing for the first time.… We believe the action is unimportant.”

He added that Sagittarius and Del Taco hold “ample current liquidity from cash on hand and through [its] revolving credit facility.” In addition, he said, the company expects to post increased profit this year.

David Head, chairman and chief executive of Sagittarius’ Captain D’s division, concurred, adding: “From a capitalization perspective, we are currently in a solid position. We have ample liquidity both from cash on hand and through our revolving credit facility and significant headroom as it relates to our financial covenants.” Some reports covering the Moody’s list indicated that OSI Restaurant Partners had recently hired turnaround specialists, but the Tampa, Fla.-based company said that was not accurate.

“OSI has not retained, nor do we plan to retain, any restructuring advisors or service,” the company said in a statement sent to Nation’s Restaurant News.

The company said it had hired AlixPartners LLP of Southfield, Mich., to aid in supply chain efficiencies and Miller Buckfire & Co. of New York to assist in the company’s debt-tender offering, which it began last month.

“AlixPartners’ work has played a significant role in OSI’s development of its cost-reduction plan for 2009,” OSI said. “Their focus has included distribution cost reduction, labor efficiency optimization, and repair and maintenance service bundling and optimization.”

“Although both Miller Buckfire and AlixPartners have divisions that provide restructuring services to companies, that is not the capacity in which they have been retained by OSI,” the statement said.

OSI, which operates or franchises about 1,500 restaurants, reported last month that systemwide same-store sales for the fourth quarter fell 9.5 percent at Outback, 7.4 percent at Carrabba’s Italian Grill, 14 percent at Bonefish Grill, and 19.6 percent at Fleming’s Prime Steakhouse and Wine Bar.

The company booked a net loss of $506.4 million, which included $512 million in impairment charges. Fourth-quarter revenues fell 10.2 percent to $928.3 million. Its debt totals $1.72 billion.

Lisa Jennings and Sarah E. Lockyer contributed to this report.

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