Moody's affirms Arby's

Moody's Investors Service said it affirmed Arby's Restaurant Group Inc.'s B1 corporate family and probability-of-default ratings following the announcement that Arby's parent company, Triarc Cos., Inc., and Wendy's International, Inc. signed a definitive merger agreement for an all-stock deal.

The agency also affirmed the Ba3 rating (LGD2, 28%) on Arby's guaranteed senior secured revolving credit facility due July 25, 2011.

The outlook remains negative.

The affirmation reflects a reasonable level of brand awareness in the company's core markets, meaningful scale with about 3,600 units and relatively diversified day part breakdown between lunch and dinner, Moody's said.

The negative outlook reflects weak demand coupled with rising food and labor costs that may pressure earnings in 2008, the agency noted.

The outlook also incorporates business risks associated with implementation of management's plan to improve operating performance at Wendy's and the risk that it could cause disruption at Arby's, as well as uncertainty about the potential entity's future capital structure, liquidity and financial policy, Moody's added.

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