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Rating Action:

Moody's changes B&G's outlook to stable from negative, affirms B1 CFR

03 Sep 2020

New York, September 03, 2020 -- Moody's Investors Service ("Moody's") changed B&G Foods, Inc.'s ("B&G") rating outlook to stable from negative and affirmed the company's B1 Corporate Family Rating ("CFR"), B1-PD Probability of Default Rating, and B2 senior unsecured note ratings. Moody's also upgraded the senior secured first lien revolving credit facility and the senior secured first lien term loan ratings to Ba1 from Ba2. The Speculative Grade Liquidity Rating remains SGL-1.

The change to a stable outlook reflects the improvement in B&G's operating earnings and cash flow because the coronavirus pandemic has caused an increase in at-home food consumption. For the quarter ended June 27, 2020, revenues increased about 38% year-over-year and Moody's adjusted EBITDA increased about 42% year-over-year compared to the prior year's quarter. Improved cash generation allowed B&G to voluntarily prepay $75 million of it term loan as well as its revolver borrowings, and build a sizable cash balance that provides greater capacity to fund the company's ongoing acquisition strategy within the Moody's 6.0x debt-to-EBITDA leverage expectation for the B1 rating with comfortably positive free cash flow.

Moody's expects that elevated demand for at-home food consumption that is benefitting B&G will continue into 2020, albeit at a moderating pace. Revenue and earnings will likely drop in 2021 because a gradually recovering economy and capacity in out-of-home eating venues will reverse some of the gains in at-home food consumption. Moody's nevertheless expects B&G to remain a disciplined acquiror, maintain the current dividend rate, and sustain net debt-to-EBITDA leverage within the company's targeted 4.5x-5.5x range (based on the company calculation; 5.0x LTM June 2020).

The upgrade of the senior secured first lien revolving credit facility and the senior secured first lien term loan debt reflects B&G's voluntary prepayment of $75 million of its term loan as well as the repayment of borrowings under its credit facility, which reduced the mix of secured debt in the capital structure.

The following ratings/assessments are affected by today's action:

Ratings Affirmed:

..Issuer: B&G Foods, Inc.

.... Corporate Family Rating, Affirmed B1

.... Probability of Default Rating, Affirmed B1-PD

....GTD Senior Unsecured Notes, Affirmed B2 (LGD5)

Ratings Upgraded:

....Senior Secured 1st Lien Revolving Credit Facility, Upgraded to Ba1 (LGD2) from Ba2 (LGD2)

....Senior Secured 1st Lien Term Loan, upgraded to Ba1 (LGD2) from Ba2 (LGD2)

Outlook Actions:

..Issuer: B&G Foods, Inc.

....Outlook, Changed To Stable From Negative

RATINGS RATIONALE

B&G's B1 CFR reflects the company's high financial leverage and relatively aggressive financial policies, highlighted by large dividend payments and the periodic use of debt to fund potentially large acquisitions. The credit profile also reflects B&G's moderate but improving scale relative to more highly rated industry peers and its acquisitive growth strategy because of a presence in mature and highly competitive product categories with low growth prospects. The company's debt-to-EBITDA for the twelve months ended June 27, 2020, was 5.7x on a Moody's-adjusted basis, an improvement from 2019 year-end leverage of 6.3x. Moody's expects debt to EBITDA leverage to remain in a 5x range over the next 12-to-18 months. B&G's credit profile benefits from relatively high margins, consistent cash flow generation from a broad food product portfolio with low cyclical demand volatility, and a largely successful track record of integrating acquisitions. B&G's willingness to dividend a high portion (targeted at roughly 50% - 65%) of its cash from operations less capital spending creates credit risk in combination with the acquisitive growth strategy because it creates a greater likelihood the acquisitions will be funded with debt and increase leverage. This risk is only partially mitigated by the consistency of the company's cash flow generation and the current sizable cash balance.

B&G's SGL-1 rating reflects very good liquidity because of modest projected free cash flow, its large, undrawn $700 million revolver expiring in November 2022, and lack of meaningful debt maturities over the next two years. The cash sources provide ample resources for reinvestment needs and potential acquisitions.

The rapid spread of the coronavirus outbreak, deteriorating global economic outlook, low oil prices, and high asset price volatility have created an unprecedented credit shock across a range of sectors and regions. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Notwithstanding, B&G and many other packaged food companies are likely to be more resilient than companies in other sectors, although some volatility can be expected through 2021 due to uncertain demand characteristics, channel shifting, and the potential for supply chain disruptions and difficult comparisons following these shifts.

Governance risk includes an acquisitive growth strategy that leads to frequent use of debt and leverage, and a high dividend payment that limits the level of free cash flow. B&G's 4.5x-5.5x target net debt-to-EBITDA leverage (company calculation) creates some discipline around the acquisitive strategy.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

B&G's ratings could be upgraded if the company is able to sustain debt-to-EBITDA below 5.0x while pursuing its acquisition-based growth strategy, improve retained cash flow (RCF)-to-net debt such that it approaches 10%, and maintain very good liquidity. Alternatively, ratings could be downgraded if debt-to-EBITDA is sustained above 6.0x, RCF-to-net debt is sustained below 5%, operating performance weakens meaningfully, the company raises its dividend faster than operating cash flow, leverage increases for acquisitions or shareholder distributions, or if liquidity deteriorates.

The principal methodology used in these ratings was Consumer Packaged Goods Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1202237. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

B&G Foods, Inc. ("B&G", NYSE: BGS) based in Parsippany, New Jersey, is a publicly traded manufacturer and distributor of a diverse portfolio of largely branded, shelf-stable food products, many of which have leading regional or national market shares in niche categories. The company also has a significant presence in frozen food following the 2015 acquisition of Green Giant and maintains a small presence in household products. B&G's brands include Back to Nature, B&G, B&M, Cream of Wheat, Dash, Green Giant, Las Palmas, Le Sueur, Mama Mary's, Maple Grove Farms, New York Style, Ortega, Polaner, Spice Islands, and Victoria, among others. B&G sells to a diversified customer base including grocery stores, mass merchants, wholesalers, clubs, dollar stores, drug stores, the military and other food service providers. B&G generated net sales for the twelve months ended June 30, 2020 of approximately $1.9 billion.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, 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 issued the credit rating is available on www.moodys.com.

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.

Frank Henson
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

John E. Puchalla, CFA
Associate Managing Director
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

No Related Data.
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