Fitch Rates ARAMARK's $250MM Sr. Unsecured Notes 'BBB'.CHICAGO -- Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has assigned a 'BBB' rating to ARAMARK Corp's (ARAMARK) proposed $250 million senior unsecured notes due 2012. Proceeds from the debt issuance are expected to be used to reduce credit facility borrowings. The senior unsecured debt Unsecured debt Debt that does not identify specific assets that the debtholder is entitled to in case of default. issuance is a direct obligation of ARAMARK Services, Inc., the company's wholly owned subsidiary Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. , and unconditionally guaranteed by the parent ARAMARK Corp. (BBB BBB A medium grade assigned to a debt obligation by a rating agency to indicate an adequate ability to pay interest and repay principal. However, adverse developments are more likely to impair this ability than would be the case for bonds rated A and above. ). The Rating Outlook is Stable. Fitch's ratings reflect the company's solid financial profile, strong competitive position, as well as strong business, client and geographic diversification. ARAMARK has improved its credit profile from fiscal 2000 through fiscal 2004. Cost control measures in addition to strong revenue growth contributed to a 28% increase in operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. over that same period. While Fitch recognizes that the company benefits from high client retention rates, Fitch also recognizes the risk posed by the fact that most service contracts are cancelable upon short notice. The rating also considers the company's appetite for debt-financed acquisitions and/or share repurchases that have increased leverage. During the first half of fiscal 2005, debt levels increased by $156 million to $2.0 billion from fiscal year-end 2004 due to acquisition activities, seasonal working capital needs, and stock repurchases. Leverage, as defined by total debt-to-EBITDA, increased modestly to 2.3 times (x) during the latest 12 months (LTM LTM abbr. long-term memory ) ended April 1, 2005 from 2.2x at fiscal year-end 2004 (adjusted debt/EBITDAR increased to 3.4x from 3.3x) mainly due to higher debt levels. However, Fitch expects credit protection measures to remain relatively stable, with continued EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become growth and flat to modestly higher debt levels. Margin expansion has been limited recently by the cancellation of the NHL NHL Non-Hodgkin's lymphoma, see there season, and weaker than expected results in both the U.K. Food and Services segment and the Wearguard-Crest business, which Fitch estimates to collectively represent 8% of total revenue. Despite these challenges, the company continues to generate revenue and EBITDA growth with organic growth representing 4% of revenue growth during fiscal 2005. For the LTM ended April 1, 2005, the company generated $10.6 billion of revenue and $864 million of EBITDA vs. $10.2 billion of revenue and $836 million of EBITDA during fiscal 2004, and EBITDA margins of 8.1% and 8.2% over the same periods (EBITDAR Earnings Before Interest, Taxes, Depreciation, Amortization, and Restructuring Costs - EBITDAR An indicator of a company's financial performance calculated as: = Revenue - Expenses (excluding tax, interest, depreciation, amortization, and restructuring costs) margins of 9.6% and 9.7%). Margins have steadily decreased over the last three years in part due to operational challenges faced by the company's healthcare business. The Healthcare segment's profitability, however, has started to show improvements in fiscal 2005. Fitch anticipates that the Healthcare segment will contribute to stabilizing margins in the near future. The company's liquidity position is solid and supported by strong free cash flow of approximately $200 million generated during the LTM ended April 1, 2005 (as measured by cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses less capital expenditures less dividends) and cash balances of $49 million at April 1, 2005. Liquidity is further supported by a $900 million credit facility that expires in March 2009 with approximately $540 million of available capacity. The credit facility contains an option for the company to increase the amount of the facility to $1.25 billion. The revolver borrowings are direct obligations of ARAMARK Services, Inc. and ARAMARK Uniform and Career Apparel Group, Inc. and are guaranteed by the parent, ARAMARK. Additional liquidity is provided by the company's GBP GBP In currencies, this is the abbreviation for the British Pound. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. 175 million revolving credit facility with borrowings in multiple currencies with an option to increase the amount of the facility to GBP250 million. Liquidity is also enhanced by Aramark's US$225 million accounts receivable securitization program, which had US$193.3 million outstanding on April 1, 2005. ARAMARK faces no other debt maturities in 2005 beyond the US$225 million that is being refinanced with the proceeds of the new debt issuance. The company has US$310 million of debt due in fiscal 2006. Maturities beyond 2006 are US$531 million in 2007, US$303 million in 2008, US$674 million in 2009, and US$25 million thereafter. |
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