S&P cuts Rent-Way outlook to negative

Standard & Poor's said it revised its outlook on Rent-Way Inc.'s B+ corporate credit rating, BB- $60 million bank loan due 2008 and B- $205 million 11 5/8% notes due 2010 to negative from stable based on weak profitability trends over the past two quarters.

S&P said the ratings reflect the challenges of competing with industry leader Rent-A-Center Inc., declining operating trends and a highly leveraged capital structure. Total debt to EBITDA for the 12 months ended Dec. 31 increased to roughly 5.5x from about 4.5x the year before.

Rent-Way is the third-largest operator in the retail rent-to-own industry. Same-store sales decreased 2.4% in the first quarter ended Dec. 31 after rising 2.1% for the fiscal year ended Sept. 30, while operating margins for the 12 months ended Dec. 31 decreased to about 15% from about 17% because of higher gas prices negatively affecting the disposable income of the company's customers, the impact of new stores and the effect of hurricanes Katrina and Rita, the agency said.

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