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Rating Action:

MOODY'S UPGRADES MORTGAGE BONDS TO B2 AND ASSIGNS Caa TO SUBORDINATED ISSUE OF AMERICOLD CORPORATION

14 Mar 1996
MOODY'S UPGRADES MORTGAGE BONDS TO B2 AND ASSIGNS Caa TO SUBORDINATED ISSUE OF AMERICOLD CORPORATION New York, 03-14-96 -- Moody's Investors Service upgraded the ratings of both the Series A and Series B first mortgage bonds from B3 to B2, and concurrently assigned a Caa to the proposed new $120 million senior subordinated notes, due 2008, of Americold Corporation. The Caa rating on the existing 15% senior subordinated notes will be withdrawn once the refinancing is completed. The outlook is positive.
The ratings upgrade recognizes the improvements the company achieved since its emergence from bankruptcy in June 1995, and the negligible impact of the reorganization on the overall business. Furthermore, the ratings acknowledge the inherent stability of the frozen food warehousing business, the growth in cash flow anticipated with the planned expansion, and the company's strong market position as the largest public refrigerated warehousing company. The positive outlook was assigned in anticipation of the cash flow growth and the potential success of the logistics service in obtaining warehousing contracts. However, the ratings continue to reflect the extremely high debt burden, changing business mix towards lower margin segments, vulnerability to weather and other harvest-related issues, and customer concentration.
The mortgage bond ratings ascribe value to the collateral underlying the mortgages, which provide a decent loan-to-value coverage. The ratings are further supported by our expectations that a good portion of the collateral value may be preserved in a distressed scenario given the need for storage space, the long economic life of the facilities, and the low capital requirements. The Series A and B bonds are currently collateralized by 32 facilities, with an aggregate appraised value of $470 million. There are only 6 unencumbered facilities, and future expansion will be financed via a combination of leases and bank debt. The company is contemplating refinancing the Series A bonds shortly.
The company continues to actively pursue third party logistics business, and thus far has obtained three contracts, although they are with three subsidiaries of one customer, H.J. Heinz. Heinz currently contributes over one-third of total revenues, while the top ten customers represent 55% of the total. The company views logistics as a means to strengthen customer relationships and win additional warehousing contracts. It remains to be seen how successful this strategy will be.
Over the next 12 to 18 months, we can expect continued capacity expansion, and a commensurate increase in the volume of business. The company will also benefit from the rejection of four poor performing leases (as part of the bankruptcy arrangement) and the addition of new contracts at slightly higher rates of return. However, the greater rate of increase in handling and logistics volume relative to storage will drive down margins. Over the longer term, the company may face greater margin pressures as customers continue their efforts toward optimizing product movement efficiency, which may entail minimizing warehousing time.
While the speedy bankruptcy proceedings in 1995 helped avoid customer disruptions, this benefit is negated by the lack of debt reduction. Consequently, Americold continues to be burdened by a very high leverage, and will likely remain so in the foreseeable future. On a pro-forma basis, debt to EBITDA and cash flow interest coverage are 6.2 times and 1.4 times, respectively.
Americold Corporation, based in Portland, Oregon, is the nation's largest and one of the oldest operators of public refrigerated warehouse space. The company is also a provider of transportation logistics services.

No Related Data.
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