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21 Apr 1997
MOODY'S UPGRADES KEEBLER CORPORATION'S SENIOR SUBORDINATED NOTES TO B1 AND BANK CREDIT FACILITY TO Ba2
New York, 04-21-97 -- Moody's Investors Service upgraded Keebler Corporation's (Keebler) senior subordinated debt to B1 and the bank credit facility to Ba2. The outlook for the company is positive.
The rating changes reflect the improved operating results and successful integration of Sunshine Biscuits, Inc. (Sunshine) which was acquired in June 1996. Keebler is now a solid second in the highly competitive biscuit and cookie business. The company benefits from its well-established brand identities, realization of operating synergies and a strong direct store delivery distribution network. Nonetheless, the company remains leveraged, and has fewer financial resources and fewer powerhouse products than its major competitor, Nabisco. The ratings also reflect the relative rankings of the securities within the debt structure.
Keebler has successfully transformed itself over the past 15 months since it was purchased by INFLO, a subsidiary of Artal Luxemburg S.A. and Flowers Industries. Management has implemented a number of cost saving initiatives including a reduction in overhead, rationalizing manufacturing facilities, and combining distribution operations. The company also has moved away from its ill-fated forays into salty snacks and frozen foods and is focused on growing its core businesses. Keebler has refined its product mix to rely more heavily on higher margined products and to extend proven brands. At the time of acquisition, Keebler outlined a three year cost savings program identifying numerous opportunities, a number of which have already been realized.
The company's performance in 1996 is reported for the 48 weeks ending December 28, 1996, reflecting the new ownership of Keebler at the end of January 1996. Despite flat sales in the biscuit industry, Keebler increased sales as a result of the Sunshine acquisition. Cost reduction programs have resulted in better performance ratios with total debt/capitalization of 69%, debt/EBITDA of 3.6 times and debt/EBITA of 5.7 times. Interest coverage is better with EBITDA/interest of 3.3 times and EBITA/interest of 2.1 times. Moody's expects this improving performance to continue during 1997 as the full year impact of the Sunshine acquisition and the cost reduction initiatives are reflected.
Despite the brighter outlook, the company still has limited flexibility because of its smaller size, more leveraged capital structure, and fewer financial resources compared to Nabisco. The absence of tangible net worth is a result of its acquisitions.
The company has 19 of the top 50 biscuit brands and a 24% market share, making it more than 4 times larger than the industry's third largest player, but continues to be smaller than Nabisco with its 35% share. These market shares have remained quite stable over the past few years. In a few product areas, such as private label biscuits and products for the food service market, Keebler is the dominant company.
The bank facility was renegotiated in April 1997 as a result of its improving performance, though it is still secured by substantially all of the assets of the company and its subsidiaries. Though the facility does benefit from the lien, it is possible that it may be relased within the next year. Keebler will save $3.6 million in cash interest during 1997 as a result of the change in its bank facility.
The 10 3/4% senior subordinated notes, due 2006, are unsecured and registered under under the Securities Act of 1933.
Keebler, headquartered in Elmhurst, Illinois, is the nation's second largest cookie and cracker manufacturer. The company produces goods for both the branded and private label segments of the business from 11 manufacturing facilities.
No Related Data.
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