Burger King Capital Holdings, Burger King Corp. (BKW) Placed on Review for Downgrade by Moody's
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Moody's Investors Service placed the ratings of Burger King Capital Holdings, LLC (BKCH) and Burger King Corporation (BKC) on review for downgrade, including BKCH's B2 Corporate Family Rating, B2-PD Probability of Default Rating and Caa1 unsecured note rating as well as BKC's Ba3 senior secured rating and B3 unsecured rating.
RATINGS RATIONALE
The review for downgrade was prompted by today's announcement that Burger King Worldwide (NYSE: BKW), the publicly traded parent company of BKCH and BKC, entered into a definitive agreement to acquire Tim Hortons, Inc. for approximately $12.0 billion. The proposed financing for the transaction is expected to include approximately $9.5 billion of debt, $3.0 billion of 9% preferred stock, and about $2.9 billion of new common equity. The transaction is expected to close in late 2014 or early 2015.
The review for downgrade reflects the material increase in debt to EBITDA to over 6.4 times (not including preferred stock) from around 3.8 times as well as the negative impact to cash flows from the increased interest burden on higher debt levels and possible dividend payments on preferred stock.
Moody's review for downgrade will focus on the terms and conditions of the proposed debt and preferred stock instruments, the cost of management's intention to aggressively grow the store base, analysis of Tim Hortons (not rated by Moody's) operations and how the management plans to distribute the consolidated entity's free cash flow. Moody's review will also take into account the larger scale of the combined entity, greater revenue diversification of the brands and product offerings, and potential growth in new markets. The review will also focus on the company's financial policies in regards to shareholder based initiatives, such as dividends going forward.
Ratings placed on review for downgrade are;
Burger King Capital Holdings, LLC
.... Probability of Default Rating, Placed on Review for Downgrade, currently B2-PD
.... Corporate Family Rating (Local Currency), Placed on Review for Downgrade, currently B2
....$685 million (current face amount $478 million) senior unsecured discount notes due 2019, Placed on Review for Downgrade, currently Caa1(LGD6)
Burger King Corporation
....$1.03 billion senior secured term loan A due 2017, Placed on Review for Downgrade, currently Ba3(LGD2)
....$705 million senior secured term loan B due 2019, Placed on Review for Downgrade, currently Ba3(LGD2)
....$130 million senior secured revolver due 2015, Placed on Review for Downgrade, currently Ba3(LGD2)
....$800 million senior unsecured notes due 2018, Placed on Review for Downgrade, currently B3(LGD5)
Outlook Actions:
Burger King Capital Holdings, LLC
....Outlook, Changed To Rating Under Review From Stable
Burger King Corporation
....Outlook, Changed To Rating Under Review From Stable
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