S&P cuts Avado Brands convertible to D

Standard & Poor's lowered Avado Brands Inc.'s corporate credit rating to D from CCC and the rating on Avado Brands Financing I's convertible preferred was lowered to D from C due to the company's announcement that it had made a one-time payment of accrued interest, equal to $4.25 per share, to holders conditional that holders of at least 90% of the issue agree to convert it into stock.

S&P views this exchange as coercive because the total value of the equity offered was materially less than the originally contracted amount.

S&P also lowered Avado's $125 million of 9.75% senior unsecured notes due 2006 to D from CCC on the company's failure to remit the June 1 interest payment on the notes.

Also, the rating on the $100 million of 11.75% subordinated notes was also lowered to C from CC due to the company's announcement that it intends to delay the June 15 interest payment on those notes. When that payment is missed, S&P will lower the rating on the subordinated notes to D.

Madison, Ga.-based Avado owns and operates three concepts - 14 Canyon Café restaurants, which are held for sale, 131 Don Pablo's Mexican Kitchens, and 74 Hops Restaurant-Bar-Breweries. The company had $236.3 million of funded debt outstanding as of March 31.

Avado has struggled as a multiconcept restaurant company.

The company's operating margin dropped to 10.7% in 2001 from 12.3% in 2000 and 17.7% in 1996 when it was a successful Applebee's franchisee.

Cash flow protection measures have weakened significantly. EBITDA covers interest expense only 1 time and leverage is high with total debt to EBITDA of 7 times.

Liquidity is poor, as the company only had $2.9 million available under its credit facility and $168,000 of cash and cash equivalents on the balance sheet as of March 31.

Moody's confirms Bluegreen convertible at Caa1

Moody's confirmed Bluegreen Corp.'s ratings, including the 8.25% convertible subordinated debentures due 2012 at Caa1, and assigned a stable ratings outlook.

The confirmation considers that the drive-to nature of Bluegreen's resort locations helped to insulate the company from reduced travel trends resulting from the events of Sept. 11.

Despite both a slowing economy and reduced travel trends, revenues were up 5% for the 9-month period ended Dec. 31 and operating income was up about 72%. In addition to higher revenues, office closings and other cost cutting efforts contributed to the operating income increase.

Moody's had previously placed the ratings of Bluegreen on review for possible downgrade in response to an expected deterioration in credit quality resulting from the tragedy.

Ratings also consider high leverage, significant exposure to real estate development risk and considerable dependence on third party financing.

Bluegreen generally operates at leverage of about 60% debt-to-capital and depends almost entirely on proceeds from receivable sales as a primary funding source. It, like many other small and medium size timeshare companies, does not typically generate positive cash flow.

The stable ratings outlook also is based on the company's recent announcement that it has successfully arranged a $125 million revolving timeshare receivable facility with an April 2003 maturity date. This facility replaces the company's $75 million, 365-day warehouse facility that it originally entered into in June 2001.

S&P affirms Omnicom ratings

Standard & Poor's affirmed the A-1 rating on the amended 4(2) program for privately placed commercial paper issued by Omnicom Finance Inc., Omnicom Finance PLC and Omnicom Capital Inc., and guaranteed by the parent Omnicom Group Inc.

The program size has been increased to $1.5 billion from $1.0 billion. Borrowings under the commercial paper program will be used for general corporate purposes, including working capital, the potential redemption of put options on the company's outstanding 0% convertible issues and acquisitions, and share repurchases.

S&P also assigned an A rating to the company's $1.6 billion unsecured 364-day credit facility to be used for general corporate purposes, including commercial paper backstop. Omnicom's single-A long-term corporate credit and senior unsecured debt ratings were also affirmed, as was the A-1 short-term debt rating. The outlook is stable.

Total debt as of March 31, 2002 was approximately $2.9 billion.

Despite the depressed advertising environment, Omnicom's financial performance has been sustained in recent quarters, primarily as a result of consistent net new business wins and astute cost control and cash flow management.

EBITDA coverage is greater than S&P's target of between 10.5 times and 11.0 times for the rating, but it incorporates little capacity for earnings setbacks, additional share repurchases or sizeable debt financed transactions.

New York, N.Y.-based Omnicom has maintained steady operating performance and account gains despite a cyclical downturn in advertising, and has adhered to fairly moderate financial policies. These factors are somewhat tempered by the difficult advertising revenue environment, which could pressure organic revenue growth and margins during the near term as well as ongoing acquisition activity.

S&P expects a greater use of equity to be used to help fund acquisitions and a slower pace of acquisitions, supporting key credit ratios.

Omnicom has maintained fairly consistent EBITDA margins of about 17%, which compares favorably with that of its peers because of good account growth, improving economies of scale aided by acquisitions, prudent management of a variable cost structure and the contribution of growing higher margin nontraditional services to total revenues.

Still, margins could be pressured in the near term if revenue visibility becomes even more limited, making it difficult to maintain costs in line with revenues.

For the past 12 months ended March 31, EBITDA coverage of interest expense was more than 14 times.

EBITDA plus rent expense coverage of interest plus rent expense, which S&P considers an important metric, was about 3 times. Reduced acquisition spending and the increasing use of equity financing for acquisitions have alleviated pressure on coverages.

As of March 31, total debt to EBITDA was about 2.4 times. Key to the rating is healthy discretionary cash flow that can be used to fund working capital requirements, acquisitions or debt reduction.

Maintenance of ratings is based on S&P's expectation that Omnicom will sustain and grow revenues through new client business and new accounts from existing clients despite advertising cycles.

Ratings stability is linked to the maintenance of EBITDA coverage in the 10.5 times to 11 times range and incorporates a modest cushion for negative earnings surprises or sizeable debt-financed transactions.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.