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Moody's upgrades Yum! Brands on clear financial policy, scale, business model

Moody's on Sept. 4 upgraded Yum! Brands Inc.'s ratings, citing the U.S. fast-food giant's "clearly articulated" financial policy, its scale, brand diversity and franchise-based business model.

The rating agency raised the company's corporate family rating to Ba2 from Ba3, its probability of default rating to Ba2-PD from Ba3-PD and its senior unsecured ratings to B1 from B2, after concluding its review on Yum! Brands.

Moody's also assigned a B1 rating to Yum's proposed senior unsecured notes offering, which was upsized to $800 million from the initially planned offering of $600 million notes.

Yum! Brands is the operator and franchiser of the Pizza Hut, Taco Bell and KFC fast-food chains. The rating agency upgraded KFC's senior unsecured ratings to Ba3 from B1 and confirmed the chain's senior secured ratings at Ba1.

The outlook on Yum! Brands is stable.

Moody's said the upgrade reflects the agency's expectation that Yum! Brands will remain committed to its current financial policy, which will see the company hold credit metrics steady or above current levels, while growing its restaurant base and maintaining very good liquidity.

"The ratings action also reflects Yum's scale, brand diversity and franchise-based business model that adds stability to earnings and reduces overall capital requirements," said Bill Fahy, senior credit officer at Moody's.

Moody's said it could further raise the ratings if Pizza Hut's U.S. operations would see sustained improvement, while KFC and Taco Bell maintains their good operating performance.

A downgrade is also likely if Yum! Brands witnesses a sustained deterioration in credit metrics.