S&P Raises Rating on Bloomin\' Brands (BLMN) to 'BB'; Sees Firm Operating Trends Over Next Year

Standard & Poor's Ratings Services today raised its corporate credit rating on Tampa, Fla.-based Bloomin’ Brands Inc. (Nasdaq: BLMN) and its operating subsidiary OSI Restaurant Partners LLC to 'BB' from 'BB-'. The outlook is stable. At the same time, we raised the issue-level rating on the senior secured credit facility to ‘BBB-’ from ‘BB+’. The recovery rating is ‘1’, indicating our expectations for very high (90%-100%) in the event of default.

"The rating action reflects our expectation that operating performance trends will remain good in the next 12 months, driven by positive same-store sales and unit expansion. We also believe that brand revitalization initiatives, productivity improvements, and continued menu innovation will help Bloomin’ Brands to continue gaining some market share and modestly improve margins," said credit analyst Helena Song. "We expect debt leverage will be about 3.1x at the end of fiscal 2014 and slightly improve to about 2.9x in 2015, primarily driven by continued EBITDA growth."

The stable outlook reflects our expectation that operating performance will remain good but credit metric improvement will moderate in the next 12 months as the company will reduce its debt pay down to fund its new dividend and share repurchase program. As a result, we forecast that Bloomin’ Brands will modestly strengthen its credit protection profile, with leverage remaining in the low 3.0x, FFO to total debt in the mid-20% range, and EBITDA interest coverage in the mid-6.0x area.

Upside scenario

We could raise the rating if the company achieves debt leverage in the mid- to high-2x range on a sustained basis and such improvement is supported by the company’s financial policy. We would also expect FFO to total debt to improve to at least the high-20% range. This could occur if EBITDA grows by about 20% on mid-double-digit revenue growth and stable margins while debt remains generally flat. Our assessment of financial risk would then improve to "intermediate" under this scenario.

Downside scenario

We could lower the rating if sales growth slows to 2% while gross margin declines 100 basis points. This would result in debt leverage in the high 3.0x area. Although less likely, a negative rating action could also occur if the company adopts a more aggressive financial policy.

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