Monday April 6, 4:14 pm Eastern Time
S&P cuts Boston Chicken ratings
(Press release provided by Standard & Poor's)
NEW YORK, April 6 - Standard & Poor's today lowered its corporate credit rating on Boston Chicken Inc. to triple-'C'
from single-'B'-plus.
At the same time, Standard & Poor's lowered its subordinated debt rating to double-'C' from single-'B'-minus on the
company.
All ratings are removed from CreditWatch where they were placed with negative implications on Oct. 31, 1997. The ratings
outlook is negative.
This action is based on deepening concern over the company's ability to meet its debt service obligations, and by a possible
violation of bank loan covenants. Boston Chicken is plagued by mounting operating losses, sharply reduced system-wide cash
flows as a result of a continuing slide in weekly average per-unit revenues at its Boston Market stores, and by the possible
impairment of the more than $800 million loans that it has extended to area developers.
In addition, Standard & Poor's does not anticipate that the
company's plans to modify and to expand its current Boston Market concept will generate any significant improvement in sales
and cash flow.
For 1997, weekly average per-unit revenue fell 12% to $19,871 from $22,461 the year, and the company incurred an
operating loss of $34 million before special charges ($211.7 million after the changes).
In 1996, Boston Chicken had operating income of $91 million. The company's bank agreement requires weekly average
per-unit revenue of $17,500 in the first quarter ending April 19, 1998 in order to utilize its bank credit facility.
However, through March 30 Boston Chicken is falling short of this pace. Even if it does manage to meet this requirement, or if
the bank agrees to a relaxed covenant, Standard & Poor's believes that the company's 1998 cash flow from operations
(estimated at $75 million) will barely be able to cover its fixed charges.
Furthermore, Boston Chicken's plan to convert its largely franchised system into a company-owned system means that it will
no longer benefit from the substantial cash flows in the form of franchise fees, royalties and interest. Overseeing the day to day
operations of 1,166 restaurants will present another major challenge, as the company will be directly responsible for managing
sales and expenses.
OUTLOOK: NEGATIVE
Competition and problems associated with Boston Market store operations may continue unabated.
The ratings could be lowered further if the company's liquidity position continues to weaken as a result of further deterioration
of its operations, or if it should be in violation of bank loan covenants, Standard & Poor's said. |
