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Rating Action:

MOODY'S ASSIGNS Ba3 RATING TO DOMINO'S ADD-ON BANK TERM LOAN; AFFIRMS ALL OTHER RATINGS AND KEEPS OUTLOOK STABLE

15 Mar 2006
MOODY'S ASSIGNS Ba3 RATING TO DOMINO'S ADD-ON BANK TERM LOAN; AFFIRMS ALL OTHER RATINGS AND KEEPS OUTLOOK STABLE

Approximately $860 Million of Debt Securities Affected.

New York, March 15, 2006 -- Moody's Investors Service assigned a Ba3 senior secured rating to Domino's, Inc.'s (Domino's) $100 million add-on term loan which was used to help fund the repurchase of $145 million of outstanding common shares from Bain Capital, LLC. At the same time, Moody's affirmed the Ba3 corporate family rating, the Ba3 senior secured bank credit facility and the B2 senior subordinated notes. The outlook remains stable.

Rating assigned with a stable outlook:

Domino's, Inc. - Ba3 for the $100 million senior secured add-on term loan maturing in 2010.

Ratings affirmed with a stable outlook:

Domino's, Inc. - Ba3 corporate family rating, Ba3 for the $125 million senior secured revolving credit facility maturing in 2009, Ba3 for the senior secured term loan maturing in 2010 and B2 for the senior subordinated notes maturing in 2011.

The affirmation of the Ba3 corporate family rating reflects Domino's solid free cash flow generation and history of accelerated debt reduction. The Ba3 rating also incorporates the company's strong brand recognition, steady franchisee royalty stream, modest need for capital expenditures and significant geographic diversification stemming from a wide-ranging store base. In addition, the ratings consider the highly competitive domestic pizza category, Domino's fairly narrow range of product offerings and the heavy reliance on promotions and advertising to sustain and enhance sales.

Moody's notes that Domino's voluntarily prepaid $35 million on its term loan in January to cover its cash sweep debt repayment requirement for calendar year 2006. Therefore, the incremental increase in debt will only be approximately $65 million from the year-end 2005 balance. The bulk of the new debt could be repaid throughout the remainder of the year as Moody's anticipates Domino's to continue its practice of sweeping its excess cash flow to further reduce debt.

The stable outlook anticipates the continuation of solid same store sales growth, both domestic and international, profitable franchisee growth, improving operating earnings and steady free cash flow generation which should reduce the incremental debt from this transaction and improve financial flexibility over time. On a pro forma basis using Moody's standard adjustments, debt-to-EBITDA is approximately 3.8x, EBITDA-to-interest expense is roughly 4.7x and free cash flow-to-debt is just over 7%.

The Ba3 rating on the bank facility (comprised of a $125 million revolver and the now upsized term loan) recognizes the fact that it is secured by substantially all assets of the company in addition to being guaranteed by Domino's Pizza, Inc., the parent and holding company, and jointly and severally guaranteed by most of Domino's domestic subsidiaries. The credit facility is not notched above the senior implied rating because of its relatively large weight in the company's capital structure and Moody's belief that fair market value for assets such as the "Domino's" trade name would fall below the total bank commitments in a distressed scenario. The B2 rating on the senior subordinated notes recognizes that the notes are contractually subordinated to a sizable amount of more senior debt, but has the guarantees of most of the domestic operating subsidiaries.

Domino's, Inc., headquartered in Ann Arbor, Michigan, operates 588 company-owned and 7,491 franchised pizza delivery stores in more than 50 countries around the world.

New York
Tom Marshella
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Eric Greaser
Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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