(The following statement was released by the rating agency)CHICAGO, April 04 (Fitch) Fitch Ratings has taken the following rating actions on DineEquity, Inc. (DineEquity; NYSE: DIN):--Long-term Issuer Default Rating (IDR) affirmed at 'B';--Senior secured bank credit facility affirmed at 'BB/RR1'.--9.5% senior unsecured notes upgraded to 'BB-/RR2' from 'B+/RR3'. The Rating Outlook is Stable. At Dec. 31, 2013, DineEquity had approximately $1.4 billion of total debt. Key Rating Drivers:Upgrade and Recovery AnalysisThe upgrade of DineEquity's 9.5% sr. unsecured notes due Oct. 19, 2018 to 'BB-/RR2' from 'B+/RR3' reflects the firm's 'B' IDR and Fitch's view that recovery for the note holders would be superior or between 71% and 90% in a distressed situation. Fitch's recovery analysis is based on assumptions related to DineEquity's enterprise value as a going concern and potential outstanding claims. The analysis considers the cash flow stability of the firm's 99% franchised business, the overall health of its franchisee network, and historical industry data about store closures for distressed restaurants. Other factors key to Fitch's analysis include the scale and diversification of two national brands and the mix of secured to unsecured debt in the firm's capital structure.Fitch views recovery for DineEquity's secured credit facility as outstanding and has therefore affirmed the ratings on these obligations at 'BB/RR1'. The credit facility is secured by a perfected first-priority security interest in substantially all assets. Both the credit facility and notes are guaranteed by substantially all domestic wholly-owned restricted subsidiaries. At Dec. 31, 2013, 34% or $467 million of DineEquity's approximate $1.4 billion of total debt consisted of secured term loans, 55% or $761 million consisted of the 9.5% senior unsecured notes, and the remaining 11% was comprised of a $49 million financing obligation and $124 million of capital leases. High Financial LeverageDineEquity's credit metrics are in line with Fitch's expectations. For the latest 12-month (LTM) period ended Dec. 31, 2013, total adjusted debt-to-operating EBITDAR was 6.0x, down from more than 7.0x following DineEquity's $2.1 billion debt-financed acquisition of Applebee's International, Inc. in November 2007. Operating EBITDAR-to-interest plus rent was 1.9x and FFO fixed charge coverage was 2.0x. Annual FCF and proceeds from refranchising, which was completed in October 2012, was used to reduce debt by more than $1 billion. Fitch projects that total adjusted debt-to-operating EBITDAR will decline to 5.9x in 2014 and 5.7x in 2015, due to low single-digit EBITDA growth and modest debt reduction. Coverage ratios are expected to improve following any potential refinancing transaction. Good Cash Flow GenerationDineEquity's cash flow is supported by the firm's 99% franchised system, which provides a steady source of royalty-based high-margin revenue and has minimal capital requirements. During 2013, 69% of DineEquity's $641 million of revenue and 89% of its $370 million of income before taxes and corporate expenses was from its franchise business segment. Fitch projects that DineEquity will generate about $50 million of annual FCF (defined as cash flow from operations less capital expenditures and dividends) during 2014 and 2015. Fitch does not include principal receipts from long-term receivables in FCF. Shareholder Friendly Financial StrategyDineEquity's stated financial strategy is to maximize the business in order to return significant FCF to shareholders. The firm pays a $0.75/share quarterly dividend that equates to a $57 million annual cash payout and as a percentage of earnings is high versus most peers. At Dec. 31, 2013, there was approximately $70 million remaining under its $100 million stock repurchase authorization. Restricted payment covenant restrictions limited total payouts to $89 million and $112 million under the firm's credit agreement and indenture, respectively, at year end. Potential RefinancingDineEquity is actively evaluating options related to the refinancing of all or a portion of its long-term debt in order to reduce interest expense and further improve cash flow. Term loans are currently priced at 2.75% over LIBOR with a floor of 1%. The 9.5% notes are callable but have a make-whole call premium until Oct. 30, 2014. After this call date, the cost to redeem the 9.5% notes declines meaningfully. Fitch believes DineEquity is likely to refinance the notes with more cost-efficient bank debt, but the issuance of lower cost bonds or a whole-company securitization are also possibilities. Material modifications to DineEquity's capital structure could result in changes to issue-level ratings.Significant Scale and DiversificationDineEquity benefits from the scale and diversification provided by its two national brands. At Dec. 31, 2013, DineEquity's system consisted of 3,631 restaurants, of which 2,011 were Applebee's Neighborhood Grill and Bar (Applebee's) and 1,620 were International House of Pancakes (IHOPs). Total systemwide sales approximated $7.4 billion with average annual restaurant sales for franchised units being about $2.4 million for Applebee's and $1.8 million for IHOP. Relatively Healthy Franchisee NetworkDineEquity has 61 Applebee's franchisees, with the five largest operating 47% of the brand's franchised units, and 348 IHOP franchisees, where the five largest operate 24% of franchised units. Fitch views DineEquity's franchise system as being healthy, given the absence of material collection-related issues and participation by many existing franchisees in the firm's past refranchising efforts, but believes Applebee's concentrated franchisee network results in higher credit risk.Same-Restaurant Sales and New Unit GrowthApplebee's same-restaurant sales (SRS) declined 0.3% in 2013, after increasing 1.2% in 2013 and 2% in 2011, reflecting the difficult U.S. sales environment, particularly for casual dining. IHOP's SRS increased 2.4% in 2013, after declining 1.6% in 2012 and 2% in 2011. For 2014, management expects Applebee's SRS to range between negative 2% and positive 1% and IHOP's SRS to increase 0.5% to 2%. Fitch views DineEquity's SRS guidance as realistic, given the impact of severe winter weather on food-away-from home spending, the slow economic recovery, and the highly competitive U.S. restaurant environment. Franchisees are expected to add about 2% to 3% of capacity to DineEquity's system, with between 40 and 50 new Applebee's and IHOP units each opening in 2014. DineEquity's mix of U.S. to international units will remain roughly 95% to 5% in 2014 as the majority of this expansion will occur domestically. Significant restaurant closures are not anticipated.Liquidity, Maturities and Debt Terms DineEquity's liquidity is adequate given the firm's FCF and limited near-term maturities. At Dec. 31, 2013, DineEquity had approximately $170 million of liquidity consisting of $106 million of cash and, after considering $11 million of letters of credit, $64 million availability under the firm's $75 million revolver expiring Oct. 19, 2015. Maturities of long-term debt are immaterial until October 2017 when the remaining balance on DineEquity's term loan becomes due. The term loan amortizes at 1% of the principal balance annually. DineEquity's 9.5% notes mature on Oct. 30, 2018. Financial covenants in DineEquity's secured credit facility include a maximum consolidated leverage ratio (defined as total indebtedness minus no more than $75 million of cash-to-EBITDA) and a minimum interest coverage ratio. The maximum leverage ratio is 6.75x for 2014, stepping down 0.25x annually through 2016 to 6.0x. The minimum coverage ratio is 1.75x for 2014, stepping up 0.25x to 2.0x in 2016. At Dec. 31, 2013, the actual ratios as reported by DineEquity were 4.8x and 2.5x, respectively. Fitch estimates that the firm had about 30% EBITDA cushion under each of these covenants at the end of 2013. RATING SENSITIVITIESChanges to DineEquity's capital structure or sustained increases or decreases in EBITDA could result in upgrades or downgrades to the firm's issue-level ratings due to Fitch's recovery analysis.Future developments that may, individually or collectively, lead to an upgrade of DineEquity's IDR include: --Total adjusted debt-to-operating EBITDAR in the mid-5.0x range due to higher than expected EBITDA growth or significant debt reduction; --Positive SSS trends at both brands and good FCF.Future developments that may, individually or collectively, lead to a downgrade of DineEquity's IDR include: --A material increase in leverage, due to debt-financed share repurchases or acquisitions or significantly lower EBITDA; --Persistently negative SSS or significant store closures;--Negative FCF and concerns around liquidity. Contact: Primary Analyst Carla Norfleet Taylor, CFADirector+1-312-368-3195Fitch Ratings, Inc.70 W. Madison StreetChicago, IL 60602 Secondary AnalystBill DensmoreSenior Director+1-312-368-3125 Committee Chairperson Wesley E. Moultrie, II, CPAManaging Director+1- 312-368-3186Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com.Additional information is available at '
  www.fitchratings.com'.
  Applicable Criteria and Related Research: --'Corporate Rating Methodology; Including Short-Term Ratings and Parent and Subsidiary Linkage' (August 2013);--'U.S. Restaurant FAQ: Inquiring Minds Want to Know' (March 2014);--'Rating Restaurant Companies - Sector Credit Factors' (February 2014);--'U.S. Restaurant Sector Credit Factor Compendium' (February 2014);--'2014 Outlook: U.S. Restaurants' (December 2013).Applicable Criteria and Related Research: Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage
  http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139
 U.S. Restaurant FAQ: Inquiring Minds Want to Know (Highlights from First-Quarter 2014 Discussions with Investors)
  http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=741558
 Rating Restaurant Companies (Sector Credit Factors)
  http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=729716
 U.S. Restaurant Sector Credit Factor Compendium
  http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=734840
 2014 Outlook: U.S. Restaurants (Shareholder Demands to Rise, Even as Market Share Battle and Cost Pressures Continue)
  http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724335
 Additional Disclosure Solicitation Status 
  http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=826280
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