Capital Markets

S&P Gives Uno One Rating Cut, Warns of Another

S&P lowers rating after the restaurant chain says it will miss a bond payment. A second cut could come if an interest payment slips.
Stephen TaubAugust 13, 2008

Standard & Poor’s lowered its ratings on Uno Restaurant Holdings Corp. to ‘CC’ from ‘CCC’ after the Boston-based restaurant chain’s parent said it would not make its scheduled bond payment on Friday. And there’s likely more downgrading ahead.

The ratings service said it would take Uno’s ratings to ‘D’ if it fails to make its interest payment that day. If the interest payment is made during the grace period, however, S&P said that it might consider an upgrade to the ‘CCC’ category.

“While the company has sufficient liquidity to make its interest payment, management intends to avail itself of the 30-day grace period and is looking into a restructuring of the company’s capital structure,” S&P noted in a report. It said that the ratings for the 200-store chain, which was acquired in a leveraged-buyout in January 2005 by private-equity fund Centre Partners, along with members of management, are based on the expectation that it will not make its Aug. 15 interest payment.

S&P did note that as a result of “challenging conditions” in the casual-dining industry, along with the company’s inconsistent performance, Uno’s EBITDA cushion over financial covenants was very thin as of the third quarter, ended June 29. It added that despite improved performance during the second half of fiscal 2007, performance worsened year-to-date iin 2008.

It also noted that a decrease in comparable-store sales and increased commodity costs led to diminishing operating margins. “Liquidity is very tenuous” S&P said, noting that Uno had about $12 million of available borrowings under its $35 million revolving credit facility as of June 29, 2008. “That liquidity source is dependent upon remaining covenant compliant.””

Uno is in talks with six bondholders for a waiver or amendment, according to a Wall Street Journal report Wednesday that cited two people familiar with the discussions. The company isn’t in “any imminent danger of filing for bankruptcy,” Uno CFO Louie Psallidas told the paper.