Fitch Ratings expects the negative effects of a declining U.S. economy, growing pressure on consumer discretionary spending, and higher than normal food costs to be further magnified in the restaurant industry during 2009. The strong likelihood of a global macroeconomic downturn, supplier consolidation and the inability to enter long-term fixed-price supply contracts will also add to operating challenges experienced in 2008. Industry rationalization, due to a continued pull-back in new unit development and additional bankruptcy filings, particularly among highly leveraged chains, franchisees and smaller independents, will continue. The combination of a challenging operating environment and difficult credit conditions have raised borrowing costs and are expected to add additional weakness to the credit profile of the industry.

Fitch views the quick service restaurant (QSR) segment as better positioned to withstand the current economic stress and market turndown because of its value perception, lower priced menu items, and continued consumer trade-down from full-service dining establishments. The Issuer Default Rating (IDR) for Burger King Corporation was upgraded by Fitch to ‘BB’ from ‘BB-‘ and the Outlook was revised to Positive, because the company’s credit measures were strong for the previous rating and operating performance continues to be good. McDonald’s Corporation (McDonald’s), which has an IDR of ‘A/F1’, and YUM! Brands, Inc. (YUM), which is rated ‘BBB-‘, currently have Stable Outlooks. These companies have significant liquidity and do not have material near-term maturities.