Moody's lowers Vicorp

Moody's Investors Service said it downgraded Vicorp Restaurants, Inc.'s corporate family and probability-of-default ratings to Caa3 from Caa2 and its senior unsecured notes rating to Ca (LGD4, 63%) from Caa3 (LGD4, 63%).

The outlook is negative.

Moody's downgrade was prompted by the company's disclosure on Feb. 4 that it engaged Piper Jaffray & Co. as its financial advisor to explore potential "restructuring transaction," which could include Chapter 11 reorganization. The company said on Jan. 30 that it was unable to file its fiscal 2007 form 10K as it was evaluating its intangible assets carrying value and expected to record an impairment charge.

The Caa3 corporate family and probability-of-default ratings reflect elevated probability of default, stemming from increasing uncertainty about its capital structure due to a potential restructuring as well as a potential technical default under its bank agreement and bond indenture arising from its inability to meet its financial reporting requirement, according to the agency.

The downgrade also incorporates the high probability-of-debt impairment within the capital structure, in particular, material losses for unsecured senior creditors in the event of default, given the company's very high leverage relative to its cash flow generation or asset base, Moody's said.

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