HEATHROW Fla. Ruth's Hospitality Group Inc. has completed the sale of five restaurant properties for $17.6 million through a sale-leaseback transaction with Sovereign Investment Co., the restaurant operator said Friday.
Proceeds from the deal were used to reduce Ruth's outstanding debt on its revolving credit facility, the company said. Ruth's Hospitality, based here, operates or franchises about 144 restaurants under the Ruth's Chris Steak House, Mitchell's Fish Market, Mitchell's Steakhouse and Cameron's Steakhouse concepts.
"One of our primary corporate objectives at this time is to maximize free cash flow and pay down debt," Bob Vincent, Ruth’s chief financial officer, said in a statement. The company wanted to "ensure maximum operating flexibility as well as remove any risk related to our debt covenant compliance," he added.
Ruth's long-term debt, according to the company's latest quarterly report for the three months ended June 30, totaled $179.8 million. Late last year, Ruth's acquired certain assets from Columbus, Ohio-based Cameron Mitchell Restaurants LLC in a $94.0 million deal that was funded through Ruth's credit facility.
Numerous restaurant companies have been working to reduce corporate leverage as lending covenants tighten and capital becomes more expensive to obtain. Certain lending terms, like a company's debt-to-EBITDA ratio, have been pressured during the economy's slowdown as sales and profit dips leave less of a cash cushion to service debt.
"In addition to several ongoing cost-cutting initiatives in the areas of supply chain, G&A, and restaurant level expenses, we believe monetizing some of the assets on our balance sheet is an effective means to reduce our leverage," Vincent said.
The properties, which were sold to Sovereign Investment Co. and then leased back to Ruth's for terms of between 12 and 20 years, were located in Metairie, La.; Palm Beach and Sarasota, Fla.; Columbus, Ohio; and Palm Desert, Calif.
On Friday, restaurant securities analyst Nicole Miller Regan at Piper Jaffray said she was "less cautious" on Ruth's debt-to-EBITDA levels now because of the lowered debt balance. The company's stock rose 2.2 percent Friday to close at $5.12 per share.