S&P: Arby's on developing watch

Standard & Poor's said it revised the CreditWatch implications for Arby's Restaurant Group Inc. to developing from negative. The B+ corporate credit rating is unaffected.

The action follows the announcement that Arby's parent company Triarc Cos. Inc. signed a definitive merger agreement with Wendy's International Inc. (BB-/Watch negative/B-1), in which Wendy's shareholders would receive a fixed ratio of 4¼ shares of Triarc class A common stock.

Wendy's is rated a notch higher than Arby's because of its stronger business risk profile and measurably stronger financial risk profile, the agency noted.

At the end of fiscal 2007, Arby's lease-adjusted debt-to-EBITDA ratio was 5.6 times, while leverage was 2.9 times at Wendy's. Since no additional debt will be used to finance the deal, S&P said leverage is expected to fall to about 3.9 times on a pro forma basis.

That estimate does not incorporate any of Triarc's estimated $60 million in cost savings from the cutting overhead or the $100 million from improved performance at Wendy's company-owned restaurants, the agency noted.

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