Moody's on May 31 placed the ratings of restaurant operator Yum! Brands Inc. on review for upgrade, citing the company's scale, geographic reach, brand diversity and franchise-based business model which it said helps to add stability to revenue and earnings and reduces overall capital requirements.
The ratings include Yum! Brands' corporate family rating of Ba3, probability of default rating of Ba3-PD, and B2 senior unsecured ratings. Also under review is the company's fried chicken unit KFC's Ba1 rated senior secured bank debt and B1 senior unsecured ratings. The agency changed the company's outlook to under review from stable.
The agency said its review will focus on Yum! Brands' commitment to its financial policy that will result in credit metrics that are either in line with current levels or stronger on a sustained basis while growing the depth and reach of its restaurant base and maintaining good liquidity.
Moody's said it could upgrade the company if it can sustain improvement in Pizza Hut U.S. while maintaining KFC and Taco Bell's good operating performance, as well as a debt to EBITDA below 4.75x and EBIT to interest above 3x.
Meanwhile, it said a downgrade is possible if the company's credit metrics deteriorate, or if adjusted debt to EBITDA goes beyond 5.5x, among other factors.