Operators downplay Moody's list

Several restaurant companies are discounting their inclusion on Moody’s Investors Services’ recently released list of companies designated by the agency as at high risk of loan default.

Moody’s released its so-called “Bottom Rung” list Tuesday, highlighting 283 companies from the 2,055 companies on which it issues debt ratings. The list covers all industry segments, and Moody’s said the 283 companies included on the list face the greatest risk of defaulting on loans and have limited access to cash.

But some of the restaurant companies included were quick to point out that the list offers little new insight into their financial status and that the difficulties they are facing because of the recession are widely known.

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 Inc., 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 observers say risks bankruptcy as a $287 million payment is due in August, according to Reuters.

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. The report imparts no new information relating to Sagittarius, other than that Moody’s has determined to include the company in a particular new database and borrower cohort that it has created. We believe the action is unimportant.”

He continued: “What is important to note about Sagittarius and Del Taco in this report is that, according to Moody’s, Sagittarius continues to have a stable outlook. Sagittarius and Del Taco have ample current liquidity from cash on hand and through our revolving credit facility. The company expects to show substantial profitable growth in 2009.”

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 of 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 Outback Steakhouse parent said in a statement. “From time to time OSI retains external consultants to assist with selected aspects of its business.”

The company said it had hired AlixPartners LLP of Southfield, Mich., and Miller Buckfire & Co. of New York.

“Miller Buckfire has been retained É for the exclusive purpose of assisting with the company’s debt-tender offering that is currently in progress,” the company said. “AlixPartners was retained back in 2008 solely to assist in identifying and implementing supply-chain efficiencies. AlixPartners’ work has played a significant role in OSI’s development of its cost-reduction plan for 2009. 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.

Like many casual-dining companies, OSI has reported sharply negative same-store sales. The company, which operates or franchises about 1,500 restaurants, said the current recession and reduced expectations for future earnings would lead the company to take agoodwill charge of as much as $540 million in its fourth quarter.

Systemwide same-store sales for the quarter ended Dec. 31 fell 9.5 percent at Outback Steakhouse, 7.4 percent at Carrabba’s Italian Grill, 14.0 percent at Bonefish Grill and 19.6 percent at Fleming’s Prime Steakhouse and Wine Bar.

Fourth-quarter corporate revenues fell 10.2 percent to $928.3 million.

Contact Ron Ruggless at [email protected]