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Rating Action:

Moody's Downgrades Candy Intermediate Holdings (d.b.a. Ferrara Candy Co.) CFR to B2

23 May 2013

$425 million of rated debt affected

New York, May 23, 2013 -- Moody's Investors Service today downgraded the Corporate Family Rating (CFR) of Candy Intermediate Holdings, Inc., a wholly owned subsidiary of Ferrara Candy Company Holdings, Inc., to B2 from B1. At the same time, Moody's downgraded the company's Probability of Default Rating (PDR) to B2-PD from B1-PD. As a result of the downgrade, the rating on the company's $425 million senior secured term loan B due 2018 has been downgraded to B3 from B2. The rating outlook is stable. The downgrade of the CFR to B2 was largely prompted by the company's high leverage, which stems from operating performance that has been below Moody's expectations since the initial rating was assigned in May 2012.

The following ratings have been downgraded for Candy Intermediate Holdings, Inc.:

Corporate Family Rating to B2 from B1;

Probability of Default Rating to B2-PD from B1-PD; and

$425 million senior secured term loan B due June 2018 to B3 (LGD4, 59%) from B2 (LGD4, 60%).

The rating outlook is stable.

RATINGS RATIONALE

The downgrade to B2 was prompted mainly by Ferrara's high leverage of greater than 6.5 times on a pro-forma basis, a level that is significantly above the maximum of 5.0 times that Moody's had cited as consistent with a B1 rating. The high leverage was primarily the result of lower sales volumes, higher distribution costs, and delays in achieving synergies related to the May 2012 merger.

Moody's believes Ferrara's FY13 free cash flow could be negative as a result of higher capital spending anticipated during the year, but the company's near term liquidity remains good based on sufficient availability under its ABL and the absence of financial covenants (other than a springing covenant under the ABL that is unlikely to be triggered over the next twelve months). ABL borrowings for the most recent quarter were higher than expected and will likely increase to fund the company's peak working capital season in September. Also, Moody's notes that Ferrara remains highly dependent on strong seasonal cash flow generation to repay ABL borrowings.

The stable outlook reflects Moody's expectation that the company will successfully complete any remaining tasks associated with the integration and that earnings and cash flow will improve over the next twelve to eighteen months. Further, we expect liquidity to be managed prudently and that de-leveraging will remain a focus as synergies are realized.

The ratings could be downgraded if leverage remains above 6.5 times by the end of FY13 or any time thereafter. In addition, the inability to reduce Ferrara's ABL reliance in 2014 could lead to ratings pressure. Alternatively, the ratings could be upgraded if leverage improves to below 5.0 times and the company maintains a good liquidity profile.

The principal methodology used in this rating was the Global Packaged Goods published in December 2012. 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 Holdings, Inc. (Ferrara), parent holding company of Candy Intermediate Holdings, Inc., is a manufacturer of branded non-chocolate products, private label confectionary products and participates in various co-manufacturing programs. Ferrara was formed in May 2012 through the merger of Farley's and Sathers Inc. (F&S) and Ferrara Pan Candy Co, Inc. (Ferrara Pan). The company is believed to be the third largest US based 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. Pro-forma revenues for the twelve months ended December 31, 2012 were approximately $823 million.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain 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 certain 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Brian Silver
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 Downgrades Candy Intermediate Holdings (d.b.a. Ferrara Candy Co.) CFR to B2
No Related Data.
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