S&P affirms Arby's

Standard & Poor's said it affirmed Arby's Restaurant Group Inc.'s B+ corporate credit and senior secured debt ratings and removed them from CreditWatch, where they were placed on June 23 with negative implications.

The outlook is negative.

The affirmation follows S&P's review of the company's financial policies and operating performance, and the negative outlook reflects the fact that operating results have been far below expectations due to slower-than-planned integration progress and higher-than-expected costs related to the 2005 acquisition of RTM (formerly Arby's largest franchisee).

The agency said the ratings reflect Arby's participation in the highly competitive quick-service sector of the restaurant industry, competition from significantly larger players and a highly leveraged capital structure. Total debt to EBITDA for the 12 months ended July 2 was more than 6x.

The ratings are supported by Arby's established brand and niche position specializing in roast beef sandwiches, S&P said. In addition, system-wide same-store sales rose 3.5% in the first eight months of 2006, although credit measures are currently weak for the rating category, the agency said it expects them to improve over time as synergies related to the RTM acquisition are realized and one-time integration costs subside.

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