Darden Restaurants (DRI) Senior Unsecured Ratings Upgraded to 'Baa3' by Moody's

April 25, 2016 11:35 AM EDT

Moody's Investors Service, upgraded the senior unsecured ratings of Darden Restaurants, Inc. (NYSE: DRI), to Baa3 from Ba1 and short term commercial paper rating to Prime-3 from Not Prime. In addition, Moody's withdrew its Ba1 Corporate Family Rating (CFR), Ba1-PD Probability of Default rating and SGL-2 Speculative Grade Liquidity rating. The ratings outlook is stable. This concludes Moody's review initiated on April 8, 2016.

Moody's upgrade reflects Darden's improved earnings performance with positive same store sales trends at both of its core brands, Olive Garden and LongHorn and Moody's view that the company's financial policies will remain moderate going forward with a balanced approach towards its capital structure and shareholder returns. The upgrade also reflects Darden's material scale, geographic reach and brand diversity within the US and strong liquidity.

"We expect Darden's operating earnings will continue to improve driving stronger and more stable credit metrics while maintaining balanced financial policies" stated Bill Fahy, Moody's Senior Credit Officer.

Ratings upgraded are:

- $150 million senior unsecured notes due 2035 upgraded to Baa3 from Ba1 (LGD4)

- $300 million senior unsecured notes due 2037 upgraded to Baa3 from Ba1 (LGD4)

- Short Term Commercial Paper rating to Prime-3 from Not Prime

- Senior Unsecured Medium Term Note Program to (P)Baa3 from (P)Bal

- Senior Unsecured Shelf to (P)Baa3 from (P)Ba1

Ratings withdrawn are:

- Corporate Family Rating rated Ba1

- Probability of Default Ratings rated Ba1-PD

- Speculative Grade Liquidity Rating rated SGL-2

The stable outlook reflects Moody's view that operating performance, earnings and credit metrics will gradually improve as management continues to focus on driving profitable same store sales growth and reducing costs. The stable outlook also assumes Darden maintains strong liquidity.

Factors that could result in an upgrade include a sustained improvement in operating performance, particularly at Olive Garden, maintaining brand diversity and management establishing a track record of a moderate financial policy with respect to capital structure, dividends, share repurchases and debt financed acquisitions. Overall, a higher rating would require debt to EBITDA of about 3.0 times and EBIT coverage of interest of over 4.0 times on a sustained basis. A higher rating would also require maintaining strong liquidity.

Factors that could result in a downgrade include deterioration in operating performance or the adoption of an aggressive financial policy. Specifically, ratings could be downgraded in the event debt to EBITDA approached 4.0 times or EBIT coverage of interest approached 3.0 times on a sustained basis.

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