Ruth's Hospitality Improves Financial Position

 |  About: Ruth's Hospitality Group, Inc. (RUTH)
by: Zacks Investment Research

Ruth’s Hospitality Group Inc. (RUTH), the operator of upscale casual-dining chains has taken prudent steps to improve its financial position and flexibility including raising $69.7 million through a stock sale to a private equity firm, a right offering to existing shareholders and the sale of its headquarters building.

The parent of Ruth’s Chris Steak House agreed to issue $25 million of newly-created Series A 10% Convertible Preferred Stock, to Bruckmann, Rosser, Sherrill & Co. Management LP, a New York private-equity firm.

The company, which operates more than 150 company and franchisee owned locations worldwide, targets gross proceeds of $35 million through a rights offering to shareholders.

Ruth’s Hospitality also successfully completed the sale of its corporate headquarters for net proceeds of approximately $9.7 million, which were used to repay debt. The company intends to relocate its headquarters to another location in Heathrow, Florida.

The company is also amending its credit agreements, which will lower the revolving loan commitment to $130 million from $175 million, and will extend the scheduled maturity date by two years to February 2015. The new agreement does not call for financial covenant testing until the end of fiscal year 2010.

The proposed transactions will help in reducing the company’s leverage and provide financial strength to combat the economic downturn. The company now expects a leverage ratio under the credit agreement in the range of 3.35 to 3.45.

Restaurants in the upscale and casual dining segments are experiencing sagging comps and declining traffic with cash strapped consumers shifting to low-priced dining options and other fast-food chains, such as Yum! Brands Inc. (NYSE:YUM) Burger King Holdings (BKC), McDonald’s Corporation (NYSE:MCD) and Chipotle Mexican Grill (NYSE:CMG).