AFC Reviews Financials; Meow Mix Increases Debt

Moody's Investors Service has placed AFC Enterprises' debt, including its Ba2-rated $275 million credit facility, under review for possible downgrade as the company approaches an August 22 deadline to file its financial results or face a possible technical bank loan default. AFC is currently in the midst of an audit committee investigation and ongoing audit, and has yet to file its annual report for the 2002 fiscal year or complete financial restatement for fiscal years 2001 and 2000. Calls to Gary Hunt, AFC's v.p. and treasurer, were not returned by press time.

Due to the scope of the ongoing accounting investigations--an outside forensic auditing firm is assisting the company's audit committee and outside counsel--Moody's anticipates that AFC will need to obtain an additional extension from its lenders for the filing. If the company is unable to overcome covenant violations through filing or restating its financial results, Moody's states that the ratings could fall due to the bank loan becoming due and payable after an appropriate cure period. The credit comprises a $75 million revolver, a $75 million "A" term loan and a $125 million "B" piece.

* Standard & Poor's has placed The Meow Mix Co. on watch with negative implications based on expectations that the company will be highly leveraged following its sale to the Cypress Group. The move applies to $84 million of bank debt, which currently carries a BB- rating. S&P expects that the Secaucus, N.J. company will subsequently have a weaker financial profile. For the 11 months ending December 29, 2002, Meow Mix's total debt-to-EBITDA was 1.7 times and its EBITDA coverage of interest was more than 10 times, according to S&P. UBS and CIBC World Markets are leading a new $231 million credit facility, which backs the $433 million acquisition of Meow Mix from J.W. Childs Associates (LMW, 7/28).