Fitch cuts Rank to junk

Fitch Ratings downgraded Rank Group plc's senior unsecured and short-term ratings to BB+ and B respectively, from BBB- and F3 and kept the senior unsecured rating on Rating Watch negative.

The ratings agency said the downgrade follows the group's announcement that it will redeem its subordinated convertible preference shares on Dec. 9, thereby increasing the level of unsecured debt. Furthermore, the company has used up liquidity after having to prepay its £125 million sterling bond due in 2008, because of the preference shares redemption. This therefore calls into question the group's liquidity for the Yankee (£124 millioin equivalent) bond due in November 2004.

Fitch believes that Rank's profile is no longer commensurate with an investment-grade credit rating, given the imminent change in Rank's capital structure and reduced liquidity, as the preference shares are paid-out by unsecured debt, and the group's relatively weak business risk profile.

On a pro forma basis, including preference shares outstandings within debt and the preference dividend within interest, Rank's lease-adjusted net debt to EBITDAR stood at 3.5x (2.8x before the preference shares redemption). EBITDAR to interest plus rent stood at 3.0x (3.8x) at the first half of 2003.

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