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14 Feb 2011
New York, February 14, 2011 -- Moody's Investors Service today affirmed Dunkin Brands, Inc.'s
(Dunkin Brands) B3 Corporate Family Rating (CFR) and Probability of Default
Rating (PDR) and Caa2 senior unsecured note rating. In addition,
Moody's lowered the company's senior secured bank ratings
to B2 from B1. The outlook is stable
Dunkin Brands is in the process of re-pricing its secured bank
credit facility and is also increasing the size of the term loan to $1.40
billion from $1.25 billion. The proceeds from the
increased term loan will be used to buy-back approximately $150
million of the company's $625 million senior unsecured notes.
The downgrade of the secured bank ratings reflects the proposed increase
in the amount of senior secured bank debt in Dunkin Brands capital structure
as well as the material reduction in liabilities that are junior to the
secured facilities -- specifically the senior unsecured notes.
This change reduces the cushion available to secured lenders in a distress
The affirmation of the B3 Corporate Family Rating reflects Dunkin Brands'
very high leverage and Moody's expectation that historically high
unemployment and intense promotional activity by its competitors will
continue to pressure operating performance. The ratings also reflect
the company's regional geographic concentration in the U.S.
and relatively narrow product focus. The ratings are supported
by the company's meaningful scale, multiple concepts which
add diversity, franchise based business model that is less capital
intensive and has lower earnings volatility, and adequate liquidity.
The ratings also factor in Moody's expectation that debt protection
metrics will improve as the company focuses on debt reduction.
The stable outlook reflects Moody's view that Dunkin Brands'
debt protection measures should gradually improve over the next twelve
to eighteen months despite persistently weak consumer spending as the
company focuses on debt reduction. The outlook also reflects Moody's
expectation that the company will maintain adequate liquidity.
Ratings affirmed and LGD point estimates adjusted are:
Corporate Family Rating at B3
Probability of Default Rating at B3
$625 million guaranteed senior unsecured notes due 2018 at Caa2
(LGD 5, 89% from LGD 5, 85%)
Ratings lowered are;
$100 million guaranteed senior secured revolver due 2015 lowered
to B2 (LGD 3, 36%) from B1 (LGD 3, 31%)
$1.4 billion guaranteed senior secured term loan B due 2017
lowered to B2 (LGD 3, 36%) from B1 (LGD 3, 31%)
Factors that could result in a downgrade include an inability to strengthen
debt protection metrics from current levels over the next 12 to 18 months
while maintaining adequate liquidity. Specifically, a downgrade
could occur if Dunkin is unable to reduce its debt to EBITDA over the
next 12 to 18 months to below 7.0 times or if EBITA to interest
approaches 1.0 time. A deterioration in liquidity could
also result in a downgrade.
Factors that could result in an upgrade include stronger debt protection
metrics driven by a sustained improvement in same store sales and steady
unit growth that results in solid operating performance as well as debt
reduction. Overall, an upgrade could occur if debt to EBITDA
falls below 6.5 times and EBITA to interest exceeds 1.5
times on a sustained basis. A higher rating would also require
The last rating action for Dunkin Brands, Inc., occurred
on November 10, 2010 when Moody's assigned B3 Corporate Family
and Probability of Default ratings, as well as a B1 rating to its
$100 million senior secured revolving credit facility and $1.25
billion senior secured term loan and a Caa2 rating to its $625
million senior unsecured notes. The outlook assigned was stable.
Dunkin Brands' ratings have been assigned by evaluating factors that Moody's
believe are relevant to the company's risk profile, such as the
company's (i) business risk and competitive position compared with others
within the industry; (ii) capital structure and financial risk;
(iii) projected performance over the near to intermediate term; and
(iv) management's track record and tolerance for risk. These attributes
were compared against other issuers both within and outside Dunkin Brands'
core industry. Dunkin Brands' ratings are believed to be
comparable to those of other issuers with similar credit risk.
The principal methodology used in this rating was Global Restaurant Industry
published in July 2008.
Dunkin franchises approximately 16,193 quick service restaurants
under the brand names Dunkin Donuts and Baskin Robbins. The company
owns and operates only a very small number of its own stores. Annual
revenues are approximately $575 to $580 million, although
systemwide sales are about $7.7 billion.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
William V. Fahy
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's affirms Dunkin Brands B3 CFR, lowers bank ratings to B2
250 Greenwich Street
New York, NY 10007
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