Fitch Ratings has downgraded Tricon Global Restaurants to BB+ from BBB- following its announced acquisition of the Yorkshire Group, owner of the A&W and Long John Silver restaurant chains. Under the terms of the acquisition, Tricon, which runs Pizza Hut and KFC, will pay Yorkshire $270 million in cash and assume another $50 million of debt. The rating action reflects a higher level of leverage than had been anticipated due to the acquisition financing as well as incremental capital expenditures to develop the acquired brands and ongoing share repurchases, according to Fitch.
"Tricon generates a lot of cash. This is a financially disciplined company and we do not intend to stray from guiding principles," said Dave Deno, Tricon's cfo in a conference call. There is risk associated with transitioning the new concepts into Tricon, though the company has already multi-branded 83 A&W's and nine Long John Silver restaurants into Tricon, which is also renaming itself Yum.
* Moody's has lowered the debt-ratings on Nortel Networks, to one notch above junk status, citing weak demand for telecommunications. The company's long-term ratings have been dropped from Baa2 to Baa3 and the commercial paper ratings have been downgraded to Prime-3 from Prime-2, with Moody's warning all ratings remain on review for possible downgrade. The downgrades reflect concerns the weakness in key end markets is likely to be deeper and more protracted than previously anticipated. The sharp fall off in spending at the emerging carriers had been cushioned by the stable spending at the incumbent carriers, which make up the bulk of carrier investment. However, weaker than anticipated demand and an increased focus on liquidity at the incumbents, have resulted in plans to cut back spending through at least 2002.
Moody's review will continue to focus on the outlook for demand of telecom equipment, the ability of Nortel to cut costs the expectation for cash generation, the ability of Nortel to identify and satisfy the equipment needs of its customer needs and the potential need to provide vendor financing to spur sales. Nortel maintains a solid liquidity position of $3.5 billion in cash, no on-balance sheet short-term borrowing and reasonable head room in the financial covenants in the bank facility. A spokesman at Nortel said, "there is intense scrutiny on the entire sector by the rating agencies."