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Rating Action:

Moody's assigns (P)B1 CFR to Post-LBO Del Monte; Stable outlook

25 Jan 2011

Approximately $4.0 billion of LBO debt instruments rated.

New York, January 25, 2011 -- Moody's Investors Service has assigned a provisional corporate family rating of (P)B1 to Del Monte Foods Company ("DelMonte HoldCo"), an intermediate holding company and parent of Del Monte Corporation ("Del Monte"), and assigned provisional ratings of (P)Ba3 to its proposed $2.5 billion senior secured term loan and (P)B3 to $1.5 billion in proposed senior secured notes, to be issued in connection with the planned leveraged buyout of publicly-traded Del Monte, by an investor group led by Kohlberg Kravis Roberts & Co. L.P. ("KKR"). The new ratings will be assigned a stable outlook. The existing ratings on $1.27 billion of debt at Del Monte, a wholly owned subsidiary of DelMonte HoldCo, will remain under review for possible downgrade until the transaction has closed, immediately after which the ratings on existing Del Monte debt instruments will be withdrawn.

RATING RATIONALE

The provisional debt ratings of DelMonte HoldCo reflect the high financial leverage that will result from the planned LBO of Del Monte, balanced against the stable operating-level performance anticipated at Del Monte with improving product mix.

Del Monte's credit metrics had been trending positively in recent years—Debt/ EBITDA recently fell below three times compared to over five times a few years ago—reflecting a more focused portfolio following the Starkist canned tuna sale in 2009 that accelerated the company's strategy to shift its sales mix way from consumer foods and toward the higher margin pet food business. Moody's estimates that at closing of the LBO transaction, proforma debt to EBITDA will approximate 6.7 times, but could decline to below 6 times by the end of fiscal 2012.

"Del Monte's core operating performance should remain stable in the intermediate term, with the consumer foods business providing stable cash flows and the pet food business driving margin expansion and earnings growth," commented Moody's senior credit officer, Brian Weddington. "Barring acquisitions, this should provide for steady reduction in leverage over time," added Weddington.

The LBO transaction valued at $5.3 billion enterprise value will be financed with an $1.6 billion equity investment from the sponsors, and $4.75 billion of new debt instruments issued by Del Monte Foods Company ($4.l billion drawn at closing will be used to retire $1.3 billion of existing debt) consisting of a $750 million five-year asset-backed revolving loan facility (not rated by Moody's), a $2.5 billion seven-year senior secured term loan, and $1.5 billion of senior unsecured notes with tenors of up to ten years. The transaction is expected to close during Del Monte's fourth fiscal quarter ending this April.

Ratings assigned:

Del Monte Foods Company:

Corporate family rating at (P)B1;

Probability of default rating at (P)B1;

$2.5 billion proposed senior secured term loan due 2018 at (P)Ba3 (LGD3) LGD% at 32;

$1.5 billion of proposed senior unsecured notes due up to 2021 at (P)B3 (LGD5), LGD% 85.

The senior secured term loan is secured by a first priority lien on substantially all the assets of Del Monte Foods Company and each guarantor (other than ABL collateral), and a second priority lien on the ABL collateral. All the Del Monte Foods Company debt will be guaranteed by all direct and indirect subsidiaries, including Del Monte Corporation.

The instrument ratings reflect both the overall probability of default (as reflected in the B1 PDR) and an average mean family loss given default assessment of 50% (or an above-average mean family recovery estimate of 50%), in line with Moody's LGD Methodology.

Moody's believes that leverage and event risk will likely remain high while Del Monte is under the control of a sponsor group, which limits the possibility of a ratings upgrade in the foreseeable future. However, Del Monte HoldCo's ratings could be considered for an upgrade if the company maintains stable operating performance such that Debt to EBITDA was sustained below 5.0 times and Retained Cash Flow to Net Debt above 11%.

A rating downgrade could be caused by a significant deterioration in operating performance or a major acquisition or unfavorable change in capital structure. Quantitatively, downward pressure would build if Debt to EBITDA exceeded 7.0 times, or Retained Cash Flow to Net Debt fell below 10%.

For more information on Del Monte, refer to moodys.com.

The most recent rating action on Del Monte was on November 26, 2010 when Moody's placed the ratings of Del Monte Foods Corporation on review for possible downgrade following the company's announcement that it had entered an agreement to sell itself to an investor group led by KKR that also includes Vestar Capital Partners and Centerview Partners for a total of $5.3 billion.

The principal methodologies used in this rating were Global Packaged Goods Industry published in July 2009, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

Headquartered in San Francisco, California, Del Monte Corporation is one of the largest producers, distributors and marketers of premium quality branded food and pet products for the U.S. retail market. Revenues for the last twelve months ended October 31, 2010 were approximately $3.7 billion.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit 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 ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service 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 the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Brian Weddington, CFA
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Christina Padgett
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns (P)B1 CFR to Post-LBO Del Monte; Stable outlook
No Related Data.
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