MARYVILLE Tenn. Ruby Tuesday Inc.’s lenders will give the restaurant company until April 18 to amend its debt agreements in order to avoid default, the company said Wednesday.
Last month, Ruby Tuesday, which operates or franchises 944 namesake casual-dining restaurants, said it expected to break certain lending covenants, specifically its debt-to-EBITDA ratio, because of slowed sales, reduced profits and the large amount of debt on its balance sheet. In addition, the company has been using its cash to fund restaurant remodels and other rebranding initiatives, leaving even less money to service its debt load that stood at about $590 million on Dec. 4.
Atechnical default typically leads to higher interest rates and less-favorable lending agreements for the borrower, especially in today’s credit environment that has yet to recover from the sub-prime lending fallout. Ruby Tuesday said its lenders have waived the covenants until next month and will work with the company to tweak the loan terms on its credit facility and public notes so that default is not triggered.
The company said it was “well on the way to structuring a favorable outcome.”
Because Ruby Tuesday has recently completed its remodeling initiatives, its focus is “firmly on sales and profits with all excess cash flow being used to reduce debt levels,” Sandy Beall, the company's founder and chief executive, said in a statement.
The company’s stock jumped more than 6 percent in trading on the news Wednesday, and one analyst noted that this was a positive step for the beleaguered casual-dining company.
“Today’s agreement gives Ruby Tuesday much-needed time as it tries to right itself after a rapid deterioration in sales,” analyst Stephen Anderson at MKM Partners LLC said. Anderson upgraded its rating on Ruby Tuesday from “sell” to “neutral” as his new profit model for the company improved on the elimination of much-higher interest spending that could have been required after a default.
Ruby Tuesday, which posted a net loss of $10.4 million on revenues of $320.9 million for its second quarter ended Dec. 4, said it expected to post its third-quarter results April 2.
