Standard & Poor’s Friday raised its corporate credit rating on Friendly Ice Cream Corp to single-`B’ from single-`B’-minus and raised its senior unsecured debt rating to single-`B’-minus from triple-`C’-plus. The outlook is stable.
The upgrade is based on the company’s restored financial flexibility following the successful completion of its refinancing plan. The refinancing includes a US$34.5m sale and leaseback of 45 restaurants, US$55m in long-term mortgages secured by 75 restaurants, and a US$30m revolving credit facility. The plan also includes the repurchase of about US$21m of its 10.5% senior notes due in 2007.
The refinancing significantly extends the maturities of the company’s debt, as Friendly’s was facing about US$75m in maturities in 2002 on its term loans and revolving credit facility.
The ratings on Friendly’s reflect its participation in the intensely competitive restaurant industry, weak credit protection measures, and a highly leveraged capital structure. These factors are partially offset by the company’s established brand name and regional market position.
Paul V. Hoagland, Friendly’s Senior VP and CFO, commented: “Standard and Poor’s raising of Friendly’s ratings is continuing evidence of the overall improving financial health of the company.”
The company’s operating performance improved in the first nine months of 2001. Same-store sales rose 1.5% in the third quarter of 2001 following a 1.4% increase in the second quarter and a 1.0% increase in the first quarter, after declining 3.3% in all of 2000. The improved results have come after the closing of 135 underperforming restaurants since March 2000. Credit protection measures are weak, with EBITDA coverage of interest for the 12 months ended Sept. 30, 2001, at 1.7 times (x), and leverage is high, with total debt to EBITDA at 5.6x for the same period.
Friendly’s operates 394 restaurants, franchises 160 restaurants and six cafes, and manufactures a line of packaged frozen desserts distributed through more than 3,500 supermarkets and other retail locations.