$425 million of rated debt affected
New York, May 23, 2012 -- Moody's Investors Service has assigned a B1 corporate family rating
(CFR) and probability of default rating to Candy Intermediate Holdings,
Inc., a wholly owned subsidiary of Ferrara Candy Company.
Concurrently, Moody's assigned a B2 rating to the proposed
$425 million senior secured term loan B due 2019. The rating
outlook is stable.
Farley's & Sathers Candy Company, Inc. (F&S)
(B1, Stable) and Ferrara Pan Candy Co., Inc.
(Ferrara Pan) (not rated) have agreed to a definitive merger under which
the two businesses will be combined to form a leading general line confectionery
manufacturer. The combined company will do business as the Ferrara
Candy Company (Ferrara). Proceeds from the proposed $425
million term loan B will be used to finance the merger of F&S and
Ferrara Pan, to repay existing debt and to pay related fees and
expenses. As part of the financing, Ferrara is expected to
secure a $125 million 5-year asset-based revolving
credit facility (ABL) that will not be rated by Moody's.
The following ratings have been assigned to Candy Intermediate Holdings,
Inc. subject to review of final documentation:
B1 Corporate family rating;
B1 Probability of default rating; and
B2 (LGD4, 60%) to the proposed $425 million senior
secured term loan B due 2019.
Further, Moody's expects to withdraw the ratings for F&S
upon completion of the proposed merger and the repayment of existing debt.
RATINGS RATIONALE
The B1 CFR reflects Ferrara's post-merger leverage,
5.4x on a proforma basis, as well as its increased scale
and solid market position within the non-chocolate confectionary
category in the US. The F&S and Ferrara Pan combination is
expected to create a business with a broad product portfolio, reduced
exposure to seasonal candies, recognizable brands and an improved
customer and channel diversification relative to the stand-alone
companies. We view the non-chocolate confectionary category
as highly competitive, dominated by large players with more recognizable
everyday brands than Ferrara. Accordingly, Moody's
views Ferrara as a price follower in the category with lower margins,
particularly in periods of rising commodity prices, such as sugar.
"While we view initial post-merger leverage as high,
Moody's expects F&S's 2011 price increases to benefit
earnings in 2012 and that cost savings from planned synergies will gradually
lead to margin expansion allowing Ferrara to restore its leverage profile
to below 4.5x by the end of 2013," said Moody's
Analyst Brian Grieser. Moody's expects Ferrara to achieve
meaningful synergies through plant rationalization, leveraging the
combined company's buying power and through labor efficiency savings.
Merger costs and initial upfront capital investments are expected to be
meaningful and will likely result in Ferrara funding a portion of these
cash outlays with its ABL. The rating incorporates Moody's
expectation that Ferrara will maintain a good liquidity profile over the
next twelve months and that ABL borrowings will be repaid in 2013 as Ferrara
begins generating positive cash flows. At $125 million,
the ABL is expected to provide meaningful cushion in 2012 to fund initial
merger related outlays as well as seasonal working capital needs.
The B2 rating on the term loan B reflects its second lien priority interest
in the collateral securing the ABL (primarily accounts receivables and
inventory) and its first lien priority interest in all other assets.
The ratings anticipate that the term loan B will not contain any financial
maintenance covenants.
The stable outlook reflects Moody's expectation of a successful integration
and that earnings and cash flow will improve over the next twelve to eighteen
months. Further, we expect liquidity to be managed prudently
as merger integration costs increase and that deleveraging will remain
a focus as synergies are realized.
Downward rating pressure could arise if integration plans fail to generate
expected synergies resulting in either continued cash consumption or the
maintenance of leverage above 5.0x by the end of 2013. The
inability to begin reducing its reliance on the ABL in 2013 could also
increase rating pressure.
A ratings upgrade is unlikely prior to completion of the integration of
the two businesses. Moody's would expect leverage to be maintained
around 3.5x, with positive free cash flow generation,
for an extended period prior to considering an upgrade given the company's
willingness to complete debt-financed acquisitions and its private
equity ownership.
The principal methodology used in rating Ferrara Candy Company was the
Global Food - Protein and Agriculture Industry Methodology published
in September 2009. Other methodologies used include Loss Given
Default for Speculative-Grade Non-Financial Companies in
the U.S., Canada and EMEA published in June 2009.
Please see the Credit Policy page on www.moodys.com for
a copy of these methodologies.
Ferrara Candy Company is a manufacturer of branded non-chocolate
products, private label confectionary products and participates
in various co-manufacturing programs. The company is believed
to be third largest US non-chocolate confectionary company with
one of the broadest product portfolios in the category. Ferrara's
brands include Brach's, Black Forest, Trolli,
Lemonheads, Jujyfruits, Atomic Fireballs, Boston Baked
Beans, Chuckles, and Now and Later. The company is
majority owned by Catterton Partners. Proforma revenues for the
twelve months ended March 31, 2012 were approximately $870
million.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Information sources used to prepare the rating are the following :
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not
an auditor and cannot in every instance independently verify or validate
information received in the rating process.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's provides a date that
it believes is the most reliable and accurate based on the information
that is available to it. Please see the ratings disclosure page
on our website www.moodys.com for further information.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Brian Grieser
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Assigns B1 CFR to Candy Intermediate Holdings; Proposed Term Loan B at B2
