Fitch: Darden on negative watch

Fitch Ratings said it placed the ratings of Darden Restaurants, Inc. on Rating Watch negative, indicating that ratings could be downgraded or affirmed upon resolution of the Rating Watch.

The ratings on negative watch include Darden's long-term issuer default rating of BBB-, along with the BBB- rating on its bank credit facilities and senior unsecured notes, short-term issuer default rating of F3 and commercial-paper program at F3.

The action follows news of Darden's potential plans to separate Red Lobster, Fitch said, and its downward revision of fiscal 2014 earnings.,

Although no final decision has been made on the form of separation, Darden said it expects to execute a tax-free spin-off of Red Lobster to shareholders, but may also consider a direct sale.

Fitch said it anticipates that Darden's leverage can improve modestly following the proposed separation of Red Lobster, if the remaining entity maintains meaningfully lower debt.

However, uncertainty exists as to the timing of any meaningful improvement in free cash flow, S&P said.

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