New York, December 04, 2019 -- Moody's Investors Service ("Moody's") today affirmed
Hostess Brands, LLC's ("Hostess") Corporate Family Rating
at B1 and its Probability of Default Rating at B1-PD. At
the same time, Moody's affirmed the company's $100 million
senior secured revolving credit facility expiring 2024 and $985
million first lien term loan due 2025 ratings at B1 (LGD4). The
outlook remains stable.
Moody's took the following rating actions on Hostess Brands, LLC:
- Corporate Family Rating affirmed at B1;
- Probability of Default Rating affirmed at B1-PD;
- $100 million senior secured revolving credit facility
expiring 2024 affirmed at B1 (LGD4).
- $985 million first lien term loan due August 2025 affirmed
at B1 (LGD4).
The rating outlook is Stable.
On December 2, 2019, Hostess Brands, Inc.,
the parent company of Hostess, announced plans to acquire Canadian
company, Voortman Cookies Limited, for approximately $320
million in cash. Hostess plans to finance the acquisition with
a combination of cash on hand and debt. Moody's expects pro-forma
leverage (debt to EBITDA) to increase modestly to around 5.3 times
given that the majority of the acquisition will be paid with cash on hand.
Moody's also expects financial leverage to decline to below 5.0
times within the next 12 months. Moody's believes the transaction
is, in the short term, a credit negative given increased financial
leverage, however a longer term credit positive given increased
scale and diversification.
The acquisition of Voortman will enable Hostess to diversify into the
specialty cookie category, which includes wafers and sugar free
cookies, creating a larger and more diversified sweet snacking platform.
Hostess plans to leverage its existing distribution channels in the US
to further grow the Voortman brand. The acquisition will also expand
Hostess' geographic manufacturing and distribution reach into Canada,
a region to which it currently has limited access. Moody's
expects Voortman to contribute approximately $90 million to revenues
and approximately $20 million to EBITDA over the next year.
Moody's further expects acquisition synergies to range between $10
million to $15 million and be realized within two years.
Additionally, Hostess plans to invest approximately $35 million
to $45 million over two-years to make plant updates and
distribution adjustments to the Voortman business.
RATINGS RATIONALE
Hostess' B1 Corporate Family Rating reflects its high financial leverage
(5.3 times debt/EBITDA at close of the transaction), concentration
in low-growth snack cakes category and moderate scale among consumer
goods companies. The rating also reflects Hostess' well-known
portfolio of snack cake brands, high profit margins, good
cash flows and very good liquidity.
The stable rating outlook reflects Moody's expectation that Hostess will
maintain its good operating performance and exceed $200 million
of EBITDA next year. Moody's also expects financial leverage to
decline below 5.0 times within the next 12 months.
The ratings could be downgraded if operating performance deteriorates,
if the company pursues debt financed acquisitions, or if for any
reason debt to EBITDA is sustained above 5.0 times.
The rating could be upgraded if Hostess continues to successfully grow
revenues, maintains stable solid operating performance, improves
earnings diversity and sustains debt to EBITDA below 4.0 times
while also maintaining good liquidity.
From an ESG perspective, we consider Hostess' financial policy
as aggressive given its high financial leverage and focus on growth through
acquisitions. However, as a publicly traded company,
Hostess is subject to strict governance rules and heightened public scrutiny.
Headquartered in Kansas City, MO, Hostess develops,
manufactures, markets, and sells packaged baked sweet goods
in the United States including snack cakes, donuts, sweet
rolls, pies and related products. Well-known brands
include Twinkies, Ding Dongs, Zingers, HoHo's,
and Donettes. Sales were approximately $900 million for
the twelve months ended September 30, 2019.
Hostess Holdco, LLC is a wholly-owned indirect subsidiary
of Hostess Brands, Inc., a publicly traded company.
The principal methodology used in these ratings was Global Packaged Goods
published in January 2017. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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 credit rating action on the
support provider and in relation to each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Maria Iarriccio
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653