Landry’s Restaurants Inc. downgraded to “neutral” from “buy”
Shares of Landry’s Restaurants Inc. (NYSE: LNY) are sliding today after the restaurant operator was downgraded by Oppenheimer & Co. to a rating of “neutral” from “buy.”
While Oppenheimer continues to believe that there is still inherent value in the Landry’s, the stock has come under pressure lately, as the owner of seafood restaurants has been caught in hot water.
According to Oppenheimer analyst Mike Smith, the company has been besieged with various difficulties including failure to file its 2006 10-K on time. The company has delayed filing its 10-K for several weeks, as it needs to complete its internal review of its stock options granting practices. Smith views this latest news as negative, as the company was originally supposed to complete its review in March. Charges associated with the review will total approximately $8.6 million after taxes, according to Smith.
Additionally, US Bank is calling its loan to Landry’s, as the company has been violating its loan covenants with US Bank since April. Under the covenant, US Bank and Wachovia acted as the Trustee of a $400 million loan made to Landry’s in 1994 and granted Landry’s a waiver.
Smith says Landry's is expected to refinance the $400 million loan at rates of around 9.0% to 9.5% and says he expects refinancing at such rates could cost the company as much as $8 million in additional interest annually. Smith says this could lower earnings by approximately $0.24 per share annually.
Shares of Landry’s slipped 7.12%, or $1.99, to $25.95 in Friday afternoon trading.
