Darden Restaurants (DRI) Remains on CreditWatch Negative After Completion of Red Lobster Sale - S&P

July 28, 2014 11:41 AM EDT

Standard & Poor's Ratings Services said its ratings on Darden Restaurant Inc. (NYSE: DRI) including the 'BBB-' corporate credit rating, remain on CreditWatch with developing implications, where we placed them on Dec. 19, 2013.

Darden has announced that the sale of Red Lobster to Golden Gate Capital is complete. The company also extended its cash tender offer of its senior notes to Aug. 7, 2014. As previously announced, Darden will use approximately $1.0 billion of the cash proceeds from the Red Lobster sale to retire outstanding debt.

"We still believe the most likely scenario is to affirm the ratings at 'BBB-' following the completion of the tender offer," said credit analyst Helena Song. "However, we believe the outlook will be negative if we affirm the rating, reflecting our view that operating performance at its key brand, Olive Garden, will remain relatively weak in the next several quarters and that Darden has limited room for further operating underperformance."

We expect to resolve the CreditWatch placement following the completion of the extended tender offer, which we now expect to be in early August, after evaluating the business and financial impact of the finalized transaction, the financing details, and management's financial policies and capital structure, including any resolutions (or taking account of any ongoing disagreements) with the activists.

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