Darden Plans to Repurchase Debt Via Red Lobster Sale Proceeds - Analyst Blog

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Darden Restaurants, Inc. ( DRI ) has launched a tender offer for $600.0 million of its debt. The notes in the offer include Senior Notes due 2017, carrying an interest rate of 6.2% and Notes with maturity in 2021 having an interest rate of 4.5%. Additionally, Senior Notes having a maturity date of 2022 and an interest rate of 3.35% along with Senior Notes due in 2035, carrying an interest rate of 6% are also included in the offer.

In addition, Darden has agreed to repurchase $80 million of Senior Notes due to mature in 2019, carrying an interest rate of 3.79% and $210 million Senior Notes due in 2024, with an interest rate of 4.52%.

Both these debt repurchases are subject to the completion of the sale of its Red Lobster restaurants. In May, this year, Darden announced its plans to sell the struggling seafood chain - Red Lobster - to private-equity firm Golden Gate Capital for $2.1 billion. The company had then announced that out of the total proceeds, it will use roughly $1 billion to retire outstanding debt. (See: Darden to Sell Off Red Lobster )

The Zacks Rank #5 (Strong Sell) company has been reeling under pressure for some time after its fiscal fourth-quarter 2014 earnings missed the Zacks Consensus Estimate. (Read: Darden Restaurants Misses on Q4 Earnings)

However, we appreciate Darden's plans to spin off Red Lobster. Over the last few quarters, Red Lobster has been undermining the strong performance of Darden's other chains. Vending Red Lobster will help Darden focus on its more profitable brands like LongHorn Steakhouse and Capital Grille.

Other Stocks to Consider

Some better-ranked stocks currently worth considering in the restaurant industry include Chipotle Mexican Grill, Inc. ( CMG ), Jack in the Box Inc. ( JACK ) and Red Robin Gourmet Burgers Inc. ( RRGB ). All these stocks sport a Zacks Rank #2 (Buy).


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: CMG , DRI , RRGB , JACK

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