S&P Places Yum! Brands (YUM) on CreditWatch Negative Following Separation Plans
Standard & Poor's Ratings Services placed its ratings, including the 'BBB' corporate credit rating, on Yum! Brands Inc. (NYSE: YUM) on CreditWatch with negative implications.
The CreditWatch placements follow Yum’s announcement that it plans to separate its China division into an independent publicly traded company. Yum will become more of a “pure play” franchisor over time and is targeting having at least 95% of its restaurants owned and operated by franchisees by the end of 2017. The proposed separation is subject to various approvals including the company's board and regulators.
The negative CreditWatch indicates that we could lower the ratings, potentially by more than two notches, once we complete our review. We expect that the company’s business risk profile could weaken somewhat after separating its fast-growing China business, and its financial risk profile will weaken meaningfully as the company transitions into the non-investment grade credit spectrum, with higher leverage and returning substantial capital to shareholders in conjunction with the transaction.
We expect to resolve the CreditWatch placements after evaluating the business and financial impact of the transaction, the financing details, and management's financial policies and capital structure, as soon as such information becomes available. We expect the transaction to be completed by the end of 2016.