UPDATE 5-IHOP/Applebee's owner DineEquity suspends dividend
(Adds other restaurant share moves)
LOS ANGELES, Dec 11 (Reuters) - The debt-laden parent of Applebee's and IHOP restaurants suspended common stock dividends on Thursday, saying the $17 million that would have paid its annual dividend will instead go to pay down debt.
The news sent shares of the company, DineEquity Inc (DIN.N), down 14.4 percent.
"Our reason for taking this action is not because of a liquidity issue but rather because the company is seeking additional flexibility and to opportunistically reduce our debt," Lucy Neugart, a company spokeswoman, told Reuters.
Glendale, California-based DineEquity has been working to decrease debt and stay in compliance with lender agreements amid an economic downturn that has forced diners to cut back on visits to full-service restaurants like those it operates.
The company, formerly named IHOP, acquired Applebee's Neighborhood Grill & Bar in a leveraged buyout about a year ago, before global credit markets melted down and the U.S. economy fell into recession.
Research Edge restaurant analyst Howard Penney said the company should have stopped paying a dividend earlier. Earlier on Thursday, before Neugart's comment, he called the suspension "a clear sign of a liquidity issue .... They don't have the money to pay it."
As of Sept, 30, DineEquity had $1.92 billion of long-term debt. And with leverage at seven times cash flow, it has less financial flexibility than many of its peers.
"We don't think they have a lot of wiggle room," said Carla Norfleet Taylor, a director at Fitch Ratings. When it comes to refinancing, she said, the company has "very limited" options.
DineEquity, which hopes to raise cash by selling more restaurants to franchisees, also has been cutting costs by doing things like trimming employee bonuses and vacations.
DineEquity Chairman and Chief Executive Officer Julia Stewart said on Oct. 27 that she expected it "to remain in compliance with our debt covenants based on current plans. However, our margin of error is expected to be tighter than we would like next year."
On Thursday, Neugart said: "As detailed in our most recent earnings announcement, our base plan allows us to meet our covenants."
DineEquity's chief financial officer resigned in September and has adopted what Penney has dubbed "aggressive" accounting.
With credit and consumer-spending trends working against the company, Penney said there is a potential that DineEquity could default by spring.
"If they can't sell assets the risk goes up significantly," he said. Continued...
