DBRS Places Tim Hortons Under Review with Negative Implications

DBRS has today placed the A (low) ratings of Tim Hortons Inc. (THI or the Company) Under Review with Negative Implications following the Company’s announcement that it is actively evaluating possible changes to its capital structure (i.e., optimal debt level within the context of maintaining an investment grade credit rating).

The Under Review with Negative Implications status reflects DBRS’s concerns that an increase in financial leverage – potentially triggered by the Company’s review of its optimal capital structure, including consideration of potential share repurchase activity and other uses of leverage – could result in a credit risk profile that would no longer be consistent with the A (low) rating category.

THI’s current ratings benefit from its position as the leading quick service restaurant in Canada and its conservative financial leverage. The current ratings also reflect the intensely competitive nature of the restaurant industry and the Company’s expansion plans outside its core Canadian market.

In its review, DBRS will focus on any revisions to the Company’s financial profile and its management intentions going forward, including any increases in debt, use of associated proceeds and target capital structure, in determining the appropriate negative rating action. Should the Company ultimately retain its current capital structure or increase leverage in only a modest way (i.e., lease-adjusted debt-to-EBITDAR under 2.0 times), DBRS would likely confirm the current A (low) ratings, assuming continued stability in the Company’s business profile.

DBRS will proceed with its review as more information becomes available and aims to resolve the Under Review status once THI announces any revisions to its financial policies.

Notes:
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Rating Companies in the Merchandising Industry, which can be found on our website under Methodologies.