Fitch Upgrades ARAMARK Corp.'s Notes and Withdraws Ratings

CHICAGO--()--Fitch Ratings has taken several rating actions on ARAMARK Holdings Corp. (Holdings) and ARAMARK Corp. (ARAMARK):

Fitch has upgraded and withdrawn the following ratings:

ARAMARK Corp. (Operating Company)

--Senior unsecured notes due 2015 to 'B+/RR3' from 'B/RR4'.

Fitch has simultaneously affirmed and withdrawn the following ratings:

ARAMARK Holdings Corp. (Parent Company)

--Long-term IDR at 'B'.

--Senior unsecured notes due 2016 at 'CCC+/RR6'

ARAMARK Corp. (Operating Company)

--Long-term IDR at 'B';

--Secured bank credit facilities at 'BB/RR1'.

The Rating Outlook is Stable.

These rating actions affect $5.7 billion of total debt at Sept. 28, 2012. ARAMARK is the obligor on $5.1 billion of this debt while Holdings is the issuer on the remaining $600 million.

SENSITIVITY/RATING DRIVERS

The upgrade of the senior unsecured notes is due to improved recovery prospects. Operating EBITDA has continued to grow since bottoming out in fiscal 2009 and as expected, the company used internally generated cash flows to reduce debt by over $200 million in the past year. The combination provided the impetus for the upgrade.

ARAMARK's ratings reflect its high financial leverage, proven ability to manage through difficult operating environments, and meaningful cash flow generation. The company's credit profile is supported by its strong market share position as a top three global provider of Food and Support Services and as the second largest provider of Uniform and Career Apparel in the U.S. ARAMARK's diversified customer base and the consistently high 90%-plus contract client retention rate adds relative stability to its business.

Financial Performance:

For the fiscal year ended Sept. 28, 2012, revenues increased 3% to $13.6 billion. The 3% growth was organic, as the 1% addition from the Filterfresh acquisition was offset by a negative 1% in negative F/X translation. Gross margins have improved slightly (by 10-15bps) in each of the past three years and SG&A expenses have been relatively flat at around $200 million. As a result, EBITDA margins have improved modestly in each of the past three fiscal years to 8.35% from 7.99%. Free cash flow (FCF) of $337 million was higher than expected with lower working capital usage. FCF and cash on hand was used to internally finance over $200M million of debt reduction and to make selective small acquisitions.

Fitch consolidates Holdings' $600 million 8.625%/9.375% PIK toggle notes due 2016 when calculating ARAMARK's credit statistics because the notes are expected to be serviced with cash flow from ARAMARK. Holdings' notes are not guaranteed by the operating company. Leverage (Debt/EBITDA) has gradually improved since the 2011 debt-financed payout to the company's equity sponsors, providing modest room in ARAMARK's ratings. Fitch expects unadjusted leverage to decline to the low-5.0x range by fiscal 2013 due to a combination of debt reduction and cash flow growth. FFO interest coverage continues to strengthen and was 2.87x from 1.94x in the prior year. FCF is projected to average over $250 million next year, despite planned increases in capital spending for systems/infrastructure investments aimed at supporting future growth and efficiencies.

Liquidity and Covenants:

ARAMARK's liquidity remains adequate and maturities in fiscal 2013 and 2014 are manageable, particularly following the Dec. 20, 2012 amendment to its senior secured credit facility which effectively refinanced $650 million of term loans previously due Jan 26, 2014. While the new term loans have a stated maturity date of July 26, 2016, the notes become due Oct. 31, 2014 if any of the company's senior unsecured notes due 2015 remain outstanding at that time. At Sept. 28, 2012, ARAMARK has approximately $2.1 billion due in 2015 and $3.3 billion of maturities in 2016. Fitch expects that ARAMARK will continue to address its capital structure and maturities in the near-to-intermediate term with additional refinancing activity ahead of these pending maturities.

ARAMARK is subject to a maximum consolidated secured debt ratio and a minimum interest coverage incurrence test ratio. Maximum leverage is currently limited to 4.5x through March 31, 2013, stepping down to 4.25x by Dec. 31, 2013, and minimum interest coverage is 2.0x. At Sept. 28, 2012 ARAMARK had approximately 31% and 49% EBITDA headroom, respectively, under its maximum leverage and minimum interest coverage covenants.

Business and Relationship Management: Tiffany Co, Chicago, Tel: +1-312-368-3185, Email: tiffany.co@fitchratings.com.

Additional information is available at 'www.fitchratings.com'. The ratings above were unsolicited and have been provided by Fitch as a service to investors. Fitch has decided to discontinue the indicated ratings, which are uncompensated .

Applicable Criteria and Related Research:

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

--'Parent and Subsidiary Rating Linkage' (Aug. 8, 2012);

--'Recovery Ratings and Notching Criteria for Non-financial Corporate Issuers' (Nov 13, 2012).

Applicable Criteria and Related Research:

Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=693773

Parent and Subsidiary Rating Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685552

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

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Contacts

Fitch Ratings
Primary Analyst
Grace Barnett
Director
+1-212-908-0718
Fitch, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Carla Norfleet Taylor, CFA
Director
+1-312-368-3195
or
Committee Chairperson
Robert Curran
Managing Director
+1-212-908-1515
or
Media Relations:
Brian Bertsch, +1-212-908-0549 (New York)
brian.bertsch@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Grace Barnett
Director
+1-212-908-0718
Fitch, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Carla Norfleet Taylor, CFA
Director
+1-312-368-3195
or
Committee Chairperson
Robert Curran
Managing Director
+1-212-908-1515
or
Media Relations:
Brian Bertsch, +1-212-908-0549 (New York)
brian.bertsch@fitchratings.com