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Rating Action:

MOODY'S ASSIGNS B2 RATING TO WM. BOLTHOUSE FARMS, INC. AND BOLTHOUSE JUICE HOLDINGS LLC'S NEW SENIOR SECURED REVOLVING CREDIT AND FIRST LIEN TERM LOAN; B3 TO NEW SECOND LIEN TERM LOAN; AND B2 CORPORATE FAMILY RATING WITH A STABLE OUTLOOK.

28 Nov 2005
MOODY'S ASSIGNS B2 RATING TO WM. BOLTHOUSE FARMS, INC. AND BOLTHOUSE JUICE HOLDINGS LLC'S NEW SENIOR SECURED REVOLVING CREDIT AND FIRST LIEN TERM LOAN; B3 TO NEW SECOND LIEN TERM LOAN; AND B2 CORPORATE FAMILY RATING WITH A STABLE OUTLOOK.

Approximately $710 Million in Debt Securities Affected

New York, November 28, 2005 -- Moody's Investors Service today assigned B2 ratings to Wm. Bolthouse Farms, Inc. ("Bolthouse") and Bolthouse Juice Holdings LLC's (as joint and several obligors) new $75 million senior secured revolving credit facility and $500 million first lien term loan; a B3 rating to its new $135 million senior secured second lien term loan; and a B2 corporate family rating. The outlook on all ratings is stable. The rated debt will help fund the leveraged acquisition of a 72% stake in Bolthouse by Madison Dearborn Partners (MDP). The $1.1 billion cost of the transaction (9.8X LTM pro forma adjusted EBITDA) will be funded by $635 million in senior secured debt provided by the bank term loans, $260 million in cash by MDP, and the rollover of a $200 million equity stake (in the form of $100 million each of common and preferred stock) by Bolthouse's senior management. Following the transaction, Bolthouse will be owned 72% by MDP and 28% by management. This represents a first time rating for these issuers.

Ratings for Wm. Bolthouse Farms, Inc. and Bolthouse Juice Holdings LLC are assigned as follows:

$ 75 million senior secured six year revolving credit facility at B2

$500 million senior secured seven year first lien term loan at B2

$135 million senior secured eight year second lien term loan at B3

Corporate family rating at B2

The outlook is stable.

Bolthouse's ratings reflect the company's significant amount of enterprise debt, resulting in high leverage relative to cash flow and modest interest coverage along with the company's relatively narrow product focus, as well as its small size relative to much larger and diverse fruit, vegetable, and packaged food companies. The ratings also reflect greater-than-average event risk as Bolthouse completes a major expansion of its existing fruit and vegetable juice productive capacity in an effort to greatly expand sales of this product segment where the company has had good success to date in establishing a solid market share in the premium healthy beverage category. The ratings gain support from the relatively stable nature of the company's earnings, cash flow, and market position within its core carrot business -- in large part due to the attractive duopoly nature of the U.S. carrot industry. Over 80% of the company's revenues and gross profits are derived from the production, processing, and sale of carrots and carrot-derived products both for retail consumption and by other food manufacturers. Carrots are sold under the "Bolthouse" and "Green Giant" brands, as well as under numerous private labels. This narrow product focus which has commodity oriented characteristics, and can be impacted by factors such as weather, plant disease, and the cost volatility of inputs such as energy. The company is also exposed to the risk that changing consumer tastes or diets could negatively impact its performance. These risks are partially moderated by the benefits derived from the highly concentrated nature of the US carrot industry in which two processors -- Bolthouse and Grimmway Farms -- control nearly 90% of the market for US cut and peeled carrots. This duopoly nature of the US carrot industry has created relatively stable revenues and earnings, with the industry not suffering the same degree of earnings volatility as some other more competitive fruit and vegetable segments such as bananas. Bolthouse also benefits from its favorable growing conditions in California which helps mitigate weather-related threats. Additionally, the high cost of the special purpose carrot processing equipment, along with the contracting arrangements Bolthouse has created with farmers in U.S. regions favorable to carrot production, has created formidable barriers to entry in this industry.

The ratings also reflect the success the company has had to date in establishing a solid market share in the premium healthy juice category which is a relatively new business that was started in 2003. Since then, the business has recently become profitable in achieving a number 2 market position in this growing product category. Presently, Bolthouse is completing the construction of a new $71 million juice production facility, which will triple current capacity. Aside from potential start-up problems at the new plant, the company may also not be able to increase sales volumes sufficiently to obtain an adequate return on its new plant investment.

The stable outlook on Bolthouse's ratings reflects Moody's anticipation that the company's core carrot business will continue its solid performance while the company undertakes the expansion of its beverage juice business, and that the company will actively move to reduce leverage in the years following the transaction.

At closing, Bolthouse will have approximately $750 million in enterprise debt, incorporating Moody's standard analytic adjustments. This includes $635 million in senior secured 1st and 2nd lien debt, $100 million in preferred stock (basket "A" treatment under Moody's methodology for handling securities of this type), and $14 million in capitalized operating leases. This results in pro-forma LTM debt/EBITDA of approximately 6.7X. We expect EBITDA-CAPX/interest to be modest during the first year at 1.3X (1.6X if PIK dividends on preferred are excluded). The 12.5% preferred stock will pay PIK interest for the first two years, then at the company's option may become cash pay subject to the company achieving certain performance standards. FCF/Debt will be under 5% once the juice plant expansion is completed, indicating modest ability to reduce debt over time. Bolthouse's balance sheet is weak, with over 62% of its assets comprised of goodwill.

The senior secured revolver and first lien term loan are rated at the corporate family rating as this debt represents the majority of the enterprise's debt. The facilities are secured by substantially all assets of the borrowers, as well as a pledge of stock, plus both upstream and downstream guarantees. The $135 million second lien term loan is notched down from the corporate family rating reflecting its secured but junior position behind the substantial $575 million in first lien revolver and term loan indebtedness. The second lien term loan is secured by the same assets and benefits from same guarantees as the first lien facilities, although its claim is junior to that of the first lien facilities. Asset coverage appears weak, with full coverage of debt requiring the company to realize significant value of goodwill in liquidation. A relatively high multiple of the company's EBITDA -- especially in a distressed scenario -- would be required to fully repay all the facilities.

Over time, Bolthouse's ratings could be upgraded if the company is able to successfully ramp up manufacturing operations in its newly-expanded juice operations without significant operating difficulties, and effectively utilize the added capacity and expected higher margin operating cash flows to reduce leverage. Upward rating pressure would result if Debt/EBITDA (including Moody's standard analytic adjustments) could be maintained below 4.5X, with free cash flow to debt registering over 8%. Downward rating pressure could occur if the company's operating performance deteriorates -- perhaps due to start-up issues at its expanded juice operations -- or if the company is unable to reduce leverage from its initial high levels such that Debt/EBITDA remains above 6.0X by FYE'07.

Wm. Bolthouse Farms, Inc., headquartered in Bakersfield California, is a processor and distributor of peeled and cut carrots and carrot products, and a producer of fruit and vegetable based beverages. Bolthouse had FY'2005 revenues of $391 million.

New York
William L. Hess
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Peter H. Abdill, CFA
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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