Rykoff-Sexton Rtgs Afrmd After JP Foodservice Merger Anncmnt.NEW YORK--(BUSINESS WIRE)--June 30, 1997--NY--Standard & Poor's CreditWire 6/30/97--Standard & Poor's today has affirmed its double-'B'-minus corporate credit and senior debt ratings, as well as its single-'B' subordinated debt Subordinated DebtA loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings. Also known as "junior security" or "subordinated loan". rating of Rykoff-Sexton Inc. The affirmations follow the company's announcement of a definitive agreement under which JP Foodservice and Rykoff will merge through an exchange of stock. Rykoff shareholders will receive JP Foodservice shares, and JP Foodservice will assume approximately $700 million of Rykoff debt. All operating units operating unit A type of operating company that engages in transactions with outsiders and that is owned by another business. For example, in 1995 the stockholders of Capital Cities/ABC approved a $19 billion merger with the Walt Disney Company, whereupon of the combined business will be renamed as U.S. Foodservice U.S. Foodservice is one of the largest broadline foodservice distributor in the United States. The company distributes food and related products to over 250,000 customers, including restaurants, healthcare facilities, lodging establishments, cafeterias, schools and colleges. U.S. . The ratings outlook is stable. Rykoff-Sexton had about $507 million of total debt (excluding off balance sheet receivables financing) outstanding at March 29, 1997. This merger announcement follows the 1996 merger with U.S. Foodservice Inc. Pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma for JP Foodservice, the newly combined entity will be the second-largest U.S. foodservice distribution company, encompassing more than 85% of the U.S. population, with annual sales of $5.2 billion. Ratings continue to reflect some operating risk Operating risk The inherent or fundamental risk of a firm, without regard to financial risk. The risk that is created by operating leverage. Also called business risk. associated with integrating JP Foodservice on the heels of a substantial 1996 merger, higher debt levels from the 1996 merger, and limited debt capacity within the existing rating category over the near term. However, the JP Foodservice merger provides even greater geographic breadth and access to many major U.S. markets in the growing, but highly fragmented, food service distribution industry. Rykoff-Sexton's operating margins Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: are expected to continue to improve as a result of anticipated cost savings from the JP Foodservice merger, following the realization of $15 million of annual cost savings from the 1996 U.S. Foodservice merger. Pro forma for the merger, the combined entity will be somewhat highly leveraged, and coverage measures will continue to be thin. Standard & Poor's estimates pro forma lease-adjusted total debt to 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 (earnings before interest, taxes, depreciation, and amortization Earnings before interest, taxes, depreciation, and amortization (EBITDA) A financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. ) will be in the 4.5 times (x)-5.0x range (including receivables), and pro forma lease-adjusted EBITDA to interest coverage to be in the mid-to-high 2x range. Although the newly combined entity is expected to be acquisitive, Standard & Poor's does not anticipate any material change in leverage to support future acquisitions. OUTLOOK: Stable. Standard & Poor's expects that anticipated operating margin improvements and other financial measures, along with management's financial policies, will remain appropriate for the current rating category. -- CreditWire CONTACT: Nicole Delz Lynch, 212-208-1970 |
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