Moody's cuts Arby's view to negative

Moody's Investors Service said it changed Arby's Restaurant Group Inc.'s outlook to negative from stable and affirmed the company's B1 corporate family rating, B2 probability-of-default rating, Ba3 $100 million guaranteed senior secured revolving credit facility due 2011 (LGD2, 28%) and Ba3 $620 million guaranteed senior secured term loan B due 2012 (LGD2, 28%).

The change in outlook reflects Arby's operating performance to date, which has fallen short of Moody's expectations. For the 12 months ended June 30, leverage remained high at about 6x, coverage on an EBIT to gross interest basis was relatively weak at about 1.5x and retained cash flow to debt was modest at about 6.9%. The agency also said it views Arby's liquidity as weak based on its belief that there is only a modest cushion under the company's existing bank covenants, which could limit access to the facility or require modification to covenant levels.

The ratings are supported by Arby's reasonable level of brand awareness in its core markets, meaningful scale with about 3,500 units and relatively diversified day part breakdown between lunch and dinner, the agency added.

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