Moody's lowers Sagittarius to Caa2

Moody's Investors Service said it lowered Sagittarius Restaurants LLC's corporate family and probability-of-default ratings to Caa2 from Caa1 and affirmed its $60 million senior secured revolving credit facility and $265 million senior secured term loan credit facility at B2 (LGD2, 21%).

The outlook is negative

The agency said the downgrade reflects Sagittarius' very weak credit metrics and eroding liquidity. The deterioration of the credit metrics was driven by the company's weak operating performance in 2008 as its operating margin declined considerably due to sluggish guest traffic and higher commodity cost and labor cost that could not be fully offset by menu price increases, Moody's added.

Although Sagittarius will still likely generate modestly positive free cash flow in the coming year, the overall liquidity profile is expected to be weak, mainly reflecting the limited headroom under its financial covenants, according to the agency.

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