Domino's Pizza targets lower debt leverage at somewhere 'north' of 3x

By Susanna Moon

Chicago, June 8 - Domino's Pizza, Inc. has been focused on delevering as a way of returning capital to its shareholders, according to Patrick Doyle, chief executive officer, on Tuesday at the Goldman Sachs Lodging, Gaming, Restaurant and Leisure Conference in New York.

"Over the course of the last 18 months or so, we have bought just about $250 million of debt at an average price of just over $0.75," Doyle said. "On that, debt prices have gone up recently, but we've been very focused on continuing to pay down the debt."

Domino's has about $1.5 billion in debt with a 6% or so blended cash interest rate that is interest-only through April 2012. After that, there are two single-year extensions, which Doyle said he is very confident the company will qualify for, based on the performance of the business.

The company has about $85 million in restricted cash on its balance sheet and typically $20 million to $30 million more cash that it is holding.

Doyle said the target debt level is somewhere below the company's current 5.7 times leverage on a net debt trailing 12-month basis.

He said the exact debt level would depend on market conditions, interest rates and the structure of that debt, but that he expects that it would be "north of 3 times leverage."

"This is a business that should be levered, and you can debate what the level on that should be. But the free cash flow that we throw off and the consistency of that cash flow means that the optimal capital structure for us is always going to be to carry a meaningful amount of debt," Doyle said.

The Ann Arbor, Mich., pizza company said it repurchased $249.2 million of principal on the fixed-rate senior notes for a total purchase price of $186.8 million in the period that Doyle described.

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