DBRS Comments on Tim Hortons’ Potential Transaction with Burger King

DBRS notes today the confirmation by Tim Hortons Inc. (THI or the Company; rated BBB with a Stable trend by DBRS) and Burger King Worldwide Inc. (Burger King) that they are in discussions regarding a potential combination, with the resulting publicly listed entity being headquartered in Canada.

DBRS believes that no rating action is necessary at this time since no official agreement or offer has been announced. The Company has stated that at this stage, a transaction remains subject to negotiation of definitive terms and there can be no assurance that any agreement will be reached or that a transaction will be consummated. However, it is important to note that 3G Capital, the majority owner of Burger King, appears to be supportive of the transaction and would continue to own the majority of the combined entity on a pro forma basis with the remainder being held by existing THI and Burger King shareholders.

Should an official agreement or offer be announced, DBRS would review the value and form of financing, structure of the transaction and resulting combined entity, as well as the business plan and financial management intentions going forward. The combination of THI and Burger King would result the third-largest quick-serve restaurant in the world with 18,000 restaurants in over 100 countries. DBRS notes that Burger King has significantly higher leverage than THI (approximately 5.0 times (x) lease-adjusted debt-to-EBITDAR versus approximately 2.77x for THI, both for the last 12-months ended Q2 2014).

DBRS also notes that THI’s Senior Unsecured Debt contains a change of control trigger provision that requires the occurrence of both a change of control and a rating event (i.e., downgrade below investment grade). If triggered, the provision requires than an offer be made to repurchase at a price equal to 101% of the outstanding Senior Unsecured Debt of the Company.

Notes:
All figures are in U.S. dollars unless otherwise noted.

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