Fitch Upgrades Burger King's IDR to 'B+'; Outlook Positive

  Fitch Upgrades Burger King's IDR to 'B+'; Outlook Positive

Business Wire

CHICAGO -- February 19, 2013

Fitch Ratings has upgraded the ratings of Burger King Worldwide, Inc. (Burger
King) and its related entities as follows.

Burger King Worldwide, Inc. (Parent Holding Co.)

--Long-term Issuer Default Rating (IDR) to 'B+' from 'B'.

Burger King Capital Holdings, LLC (BKCH/Parent of Burger King Holdings, Inc.)
and Burger King Capital Finance, Inc. (BKCF/Financing Subsidiary) as

--Long-term IDR to 'B+' from 'B';

--11% sr. discount notes due 2019 to 'B-/RR6' from 'CCC+/RR6'.

Burger King Holdings, Inc. (Direct Parent of Burger King Corporation)

--Long-term IDR to 'B+' from at 'B'.

Burger King Corporation (Operating Company)

--Long-term IDR to 'B+' from at 'B';

--Secured revolver due 2015 to 'BB+/RR1' from 'BB/RR1';

--Secured term loan A due 2017 to 'BB+/RR1' from 'BB/RR1';

--Secured term loan B due 2019 to 'BB+/RR1' from 'BB/RR1';

--9.875% senior unsecured notes due 2018 to 'B+/RR4' from 'B/RR4'.

At Dec. 31, 2012, Burger King had approximately $3 billion of total debt.

The Rating Outlook is Positive.

Rating Rationale:

The upgrade of Burger King's ratings is due to the firm's operating income
growth, declining financial leverage, and improving brand image which should
support positive future same-store sales (SSS) performance. Burger King is
successfully executing its stated business strategy which includes improving
its North American business, becoming nearly 100% franchised, and accelerating
international expansion, mainly via franchisees or master franchisee joint
ventures (JVs). Global net restaurant growth was 3.9% or a total of 485
restaurants during 2012.

Global SSS have been positive for six consecutive quarters and were 3.2% for
the 2012 year, a stark improvement versus a decline of 0.5% during 2011.
Burger King's expanded line of premium burgers, smoothies, chicken strips, and
salads along with promotions such as the 55-cent anniversary WHOPPER
celebration helped drive traffic during 2012.

Income from operations increased 15.2% to $418 million while EBITDA grew 11.5%
to $652 million in 2012. Burger King's EBITDA margin of 33.2% for 2012, up
from 25% in 2011, is benefiting from an accelerated pace of refranchising
lower margin company-operated restaurants, reduced general and administrative
expenses (G&A) and higher royalty income. Burger King was 97% franchised at
Dec. 31, 2012 and expects to be nearly 100% franchised by the end of 2013.

For the year ended Dec. 31, 2012, total debt-to-operating EBITDA was 4.7x and
total adjusted debt-to-operating EBITDAR was approximately 5.4x. Cash flow
from operations totaled $224 million and FCF (cash flow from operations less
capital expenditures and dividends) was $140 million.

Fitch projects that rent-adjusted leverage will fall below 5.0x in 2013 due
mainly to EBITDA growth. Fitch also believes Burger King has the capacity to
generate $150 million or more of FCF annually due to lower capital expenditure
requirements once fully franchised. Fitch views this level of FCF as
meaningful for a company with Burger King's revenue base and debt structure.
Total revenue for 2012 was $2 billion and, as mentioned previously, total debt
was $3 billion.

Positive Outlook:

The Positive Outlook is due to deleveraging expectations over the
near-to-intermediate term, Fitch's view that Burger King's North America
operations will continue to improve, and the fact that the company is laying a
solid foundation for faster international growth. Operating EBITDA during 2013
will be supported by controlled management general and administrative expenses
(G&A), same-store sales growth, and additional franchisee fees and royalties
as units are developed. Burger King expects to spend $200 - $220 million
annually on a go-forward basis on G&A overhead, is tweaking its barbell menu
pricing strategy to increase its competitiveness during 2013, and sees further
accelerated international net restaurant growth in 2013.

Term loan amortization, as discussed below, will result in only modest debt
reduction over the near term. Burger King currently plans to refinance its
higher coupon debt in the 2014/2015 time period. The firm's 9.875% notes due
in 2018 and 11% discount notes due 2019 are subject to a make whole payment
until Oct. 15, 2014 and April 15, 2015, which makes calling these notes
uneconomical prior to late 2014.

Key Rating Drivers:

Declining Leverage and Meaningful Cash Flow Generation

Burger King's rent-adjusted leverage has declined from nearly 7.0x to
approximately 5.0x following the October 2010 leveraged buy-out by 3G Capital
Partners, Ltd. The improvement has been due to the positive impact of reduced
G&A expenses and SSS growth on operating income and cash flow. Selling,
general, and administrative expenses declined to $346 million in 2012 from
$417 million in 2011 and as mentioned previously global SSS increased 3.2%
versus a decline of 0.5% in 2011.

Additionally, a growing percentage of franchised units, which provide
high-margin royalty-based revenue, are improving Burger King's ability to
generate more stable operating cash flow. Lower capital expenditures as
franchisees fund remodeling and new unit growth along with a modest common
dividend should also support discretionary FCF. Burger King expects capital
expenditures to decline to $30 - $40 million in 2013, from $70 million in
2012, and increased its quarterly dividend to $0.05/share resulting in an
approximate $70 million annual cash outflow for 2013.

Same-Store Sales (SSS) Growth and Net New Unit Development

SSS performance and net new unit growth are important rating drivers for
Burger King's credit ratings, as they are a key indicator of the health of the
Burger King system. As a fully franchised entity, these business statistics
are expected to provide insight on operating earnings and cash flow trends.
Fitch believes premium menu items such as the recently launched Avocado and
Swiss Whopper, a new improved coffee platform, value-oriented promotions, and
limited time offers to drive transactions will support SSS performance during
2013, although the firm will lap strong comparisons in the first half.
Moreover, master franchise JV agreements established during 2012 should
support meaningful new unit development in markets including Asia, Eastern
Europe, Latin America, and South Africa during 2013.

North American Operations

Improvement in Burger King's North America operations is a key factor in
Fitch's ratings as the region represented 63% of Burger King's $751 million of
adjusted EBITDA excluding unallocated management general and administrative
expenses and 58% of the firm's 12,997 system wide restaurants in 2012. Fitch
views Burger King's progress related to its four pillar strategy - Menu,
Marketing, Image, and Operations - for North America positively as the company
is experiencing improvement in guest satisfaction and is gradually broadening
its customer base to include more women and customers over the age of 50.

Burger King's reorganized field organization and new mandatory on-line
training for operators should improve store-level operations and strengthen
its relationship with franchisees. Furthermore, recent refranchising
agreements have been structured to include required remodeling, solidifying
the firm's ability to reach its goal of having 40% of its North America system
remodeled by 2015. At Dec. 31, 2012, the Burger King system had reimaged 19%
of its 7,476 units in the U.S. and Canada, an improvement from 11% at the
beginning of 2012.

Recovery Ratings:

The 'RR1' Recovery Rating on Burger King's secured debt reflects Fitch's
belief that recovery prospects on these obligations would remain outstanding
at 91%-100% if the firm were to file for bankruptcy protection or restructure
its balance sheet. Collateral for this debt includes a perfected
first-priority security in interest in substantially all of Burger King's and
each guarantor's assets including intangible assets, subject to certain
exceptions. Conversely, the 'B+/RR4' rating on Burger King's 9.875% 2018 notes
is due to Fitch view that recovery would be average or in the 31% - 50% range
in a distressed situation.

The 'B-/RR6' rating on BKCH's and BKCF's 11% discount notes due 2019 implies
recovery prospects of 10% or less in a distressed situation. These notes are
structurally subordinated to debt issued by Burger King Corporation because
they are not guaranteed and were not issued by the operating company which
holds the vast majority of the firm's $5.6 billion of assets at Dec. 31, 2012.

Liquidity and Maturities:

Burger King has consistently maintained good liquidity. At Dec. 31, 2012, the
firm had $547 million of cash and at Sept. 30, 2012, $118.5 million of
revolver availability net of letters of credit. Liquidity is supported by the
firm's FCF, which Fitch projects can average at least $150 million annually as
mentioned previously.

Maturities are manageable in the intermediate term and consist mainly of term
loan amortization payments through 2018. Beginning Dec. 31, 2012, Burger
King's new term loan A amortizes at a rate of $6.4 million per quarter,
stepping up to $12.9 million on Dec. 31, 2013, $19.3 million on Dec. 31, 2014,
$25.8 million on Dec. 31, 2015, and $32.2 million on Dec. 31, 2016 with the
balance payable at maturity. The new term loan B amortizes in quarterly
installments equal to 0.25% of original principal with the balance due at

Financial Covenants:

Burger King's credit agreement subjects the firm to maximum total leverage,
not adjusted for leases, and minimum interest coverage financial maintenance
covenants. Maximum leverage, excluding up to $450 million of cash, is 6.25x
beginning Dec. 31, 2012, stepping down to 6.0x March 31, 2013 through June 30,
2013, 5.75x Sept. 30, 2013 through March 31, 2014, 5.25x June 30, 2014 through
June 30, 2015, and 5.0x thereafter. Minimum interest coverage is 1.7x
beginning Dec. 31, 2012 until June 30, 2013 increasing to 2.0x after June 30,
2015. Burger King should maintain good cushion under these covenants as
current metrics are well within these parameters.

Following the end of the fiscal quarter ending Dec. 31, 2012 and thereafter,
Burger King is required to use 50% of its annual Excess Cash Flow (as defined
by the agreement) for term loan repayment if total leverage is greater than
4.5x. The requirement declines to 25% if total leverage is less than 4.5x but
greater than 3.5x or 0% if total leverage is less than 3.5x. Fitch anticipates
that Burger King will not be required to make an excess cash flow payment in

Rating Sensitivities

Future developments that may, individually or collectively, lead to a positive
rating action include:

--Material additional deleveraging; such that total adjusted debt-to-operating
EBITDAR falls below the 4.5x range, along with continued strong FCF could
result in an upgrade in Burger King's ratings;

--Sustainably strong SSS performance, particularly in North America, would be
required for additional upgrades.

Future developments that may, individually or collectively, lead to a negative
rating action include:

--A downgrade in the near term is not anticipated given Burger King's improved
leverage profile, good liquidity, and lack of near-term maturities;

--However, a meaningful increase in leverage, due to increased debt or a
prolonged period of SSS declines, increased covenant risk, and negligible FCF
could result in a downgrade in ratings.

Additional information is available at ''. The ratings
above were unsolicited and have been provided by Fitch as a service to

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 8, 2012).

Applicable Criteria and Related Research:

Corporate Rating Methodology



Fitch Ratings
Primary Analyst
Carla Norfleet Taylor, CFA, +1-312-368-3195
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
Secondary Analyst
Judi M. Rossetti, CPA/CFA, +1-312-368-2077
Senior Director
Committee Chairperson
Mark Oline, +1-312-368-2073
Managing Director
Media Relations
Brian Bertsch, +1-212-908-0549
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