Aramark to de-lever toward 3x leverage ratio by end of fiscal 2021

By Devika Patel

Knoxville, Tenn., Dec. 11 – Aramark intends to focus primarily on deleveraging the company over the next three years, with an eye on getting its leverage ratio approaching 3x by the end of fiscal 2021.

“You should certainly expect us to remain balanced in capital allocation for the next three years,” executive vice president and chief financial officer Steve Bramlage Jr. said at the company’s investor day presentation on Tuesday.

“However, our free cash flow usage is going to be directed primarily to de-levering in the first couple of years of this period of time.

“The majority of the actual cash flow is going to be used to de-lever the company,” he said.

The company is targeting a leverage ratio that approaches 3x within the next three years.

“We’ll maintain a glide path to leverage that is likely to approach 3x, net debt to EBITDA, by the time we get to the end of this three-year period of time, our fiscal 2021,” Bramlage said.

“In terms of how we step down to that, we’ll likely be a touch above 3.5x at the end of fiscal 2019 and we’ll be below 3.5x, obviously, by the end of fiscal 2020.

“We remain committed to reducing the leverage that the company is carrying, both relative and absolute,” he said.

The company has managed its debt through refinancing and making sure that most of the debt is fixed rate.

“We have done an excellent job in refinancing the vast majority of our debt and also in fixing the vast majority of our debt and as a result we have very little exposure to floating, ergo rising interest rates, especially in the United States and therefore I expect an almost negligible headwind from rising rates during this period of time,” Bramlage said.

“Our interest rate exposure is quite low.

“We’re approximately 90% fixed, currently and only about 5% of the total debt is subject to variable U.S. rates,” Bramlage said.

“Most of that is going to get paid off in 2019, which will essentially minimize our exposure to a rising U.S. rate environment for the next three or four years.

“We’re in great shape, especially in light of a rising interest rate environment.”

The company said it has no significant debt maturing for the next five years.

“That essentially gives us complete certainty and no refinancing risk over this period of time,” he said.

The company intends to maintain its credit ratings but is not seeking an investment-grade rating right now.

“We want and we expect to maintain a very strong BB+ credit rating over this period of time,” Bramlage said.

“We feel that a BB+ provides the best outcome for us via optimizing our cost of capital, that’s about 7½% today, and it also helps us maintain appropriate amounts of strategic flexibility.

“We are not targeting an investment-grade credit rating during this period of time,” he said.

Based in Philadelphia, Aramark provides food, hospitality and facility management services as well as uniform and work apparel.

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