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Moody's Places Darden (DRI) on Review for Downgrade

October 2, 2013 11:47 AM EDT
Moody's Investors Service placed the ratings of Darden Restaurants, Inc. (NYSE: DRI) on review for downgrade including its Baa2 senior unsecured ratings and Prime-2 short term commercial paper ratings.

RATINGS RATIONALE

"The review for downgrade reflects Darden's weaker than expected earnings generation, particularly since its debt financed acquisition of Yard House that has resulted in a steady deterioration in debt protection metrics as well as our view that soft consumer spending and discounting by competitors will limit the company's ability to materially improve earnings and credit metrics over the intermediate term." stated Bill Fahy, Moody's Senior Credit Officer. The steady decline in earnings is driven in part by persistently weak same store sales -- predominantly at Olive Garden and Red Lobster, which collectively account for the bulk of Darden's earnings. "We also view Darden's financial policies as relatively aggressive in regards to its continued dividend increases in light of operating challenges" stated Fahy.

Nevertheless, if Darden's ratings are downgraded, Moody's does not expect the ratings would drop more than one rating level while the outlook would likely be stable.

Moody's review will focus on Darden's ability to drive profitable same store sales growth at its core brands -- specifically Olive Garden and Red Lobster -- over the intermediate term as well as management's financial policies going forward.

Ratings placed on review for downgrade are;

- $400 million 4.5% senior unsecured notes due 10/15/2021 rated Baa2

- $500 million 6.2% senior unsecured notes due 10/15/2017 rated Baa2

- $450 million 3.35% senior unsecured notes due 11/1/2022 rated Baa2

- $300 million 6.8% senior unsecured notes due 10/15/2037 rated Baa2

- $150 million 6.0% senior unsecured notes due 8/15/2035 rated Baa2

- $100 million 7.125% senior unsecured notes due 2/1/2016 rated Baa2

- Senior unsecured shelf rated (P)Baa2

- Short term commercial paper program rated Prime-2

Darden Restaurants Inc. (Darden) owns and operates over 2,150 restaurants under brands that include Olive Garden, Red Lobster, LongHorn Steakhouse, Yard House, The Capital Grille, Bahama Breeze, Eddie V's, and Seasons 52. Annual revenues are over $8.7 billion.

The principal methodology used in this rating was the Global Restaurant Industry Methodology published in June 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.


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