Approximately $275 million of rated debt affected
New York, December 12, 2012 -- Moody's Investors Service today changed the rating outlook of CTI Foods
Holding Co., LLC (CTI) to positive from stable. Concurrently,
Moody's affirmed the company's B2 corporate family rating
(CFR), probability of default rating and the B2 rating on the upsized
first lien credit facility. The outlook change is largely reflective
of the company's improved operating performance stemming from recently
increased volumes and our favorable view on the company's announced
acquisition of Custom Food Products (CFP).
Despite the near-term increase in leverage, credit metrics
are expected to improve as the company de-levers via EBITDA growth
and debt repayment. We believe CFP will accelerate the company's
east coast expansion initiative while providing improved product diversification
and access to new distribution channels. In addition, the
acquisition is expected to yield favorable synergies.
The following ratings were affirmed with a positive outlook for CTI Foods
Holding Co., LLC:
B2 Corporate family rating;
B2 Probability of default rating;
B2 (LGD4, 54%) on the $40 million first lien revolver
due June 2014; and
B2 (LGD4, 54%) on the upsized $235 million first lien
term loan due June 2015.
RATINGS RATIONALE
The B2 CFR reflects CTI's elevated leverage, positive earnings trends
and improving customer, geographic, and product diversification.
CTI's rating is supported by relatively stable margins, which benefit
from the ability to pass through increases in commodity costs to its customers,
long-standing customer relationships and recent success diversifying
its customer base. The company's high geographic concentration,
albeit improving, as well as its small scale relative to larger
and more diverse competitors, constrains the rating. In addition,
the company has a good liquidity profile supported by access to external
liquidity.
The positive outlook reflects Moody's expectation that continued volume
strength will drive improved operating performance, and that the
company will continue to improve its customer diversification while enhancing
its east coast presence. Further, although leverage will
increase temporarily following the CFP acquisition, we expect it
to improve as EBITDA and synergy benefits are realized.
Positive rating action could result from a reduction in debt and demonstration
of successful integration of CFP. In addition, Moody's would
consider an upgrade if leverage was sustained below 4.0 times (before
the inclusion of preferred stock) with an improved liquidity and debt
maturity profile.
A downgrade is not currently anticipated over the next 12 months;
however, negative rating pressure could arise if CTI were unable
to maintain covenant compliance or were to engage in shareholder friendly
activities. Debt-to-EBITDA sustained above 5.0
times (before in the inclusion of preferred stock) or a deterioration
in the liquidity profile could result in a ratings downgrade.
The principal methodology used in rating CTI Foods Holding Co.,
LLC was the Consumer Packaged Goods Industry Methodology published in
July 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.
Headquartered in Wilder, Idaho, CTI Foods Holding Co.,
LLC (CTI) manufactures food products primarily for the quick service restaurant
industry. CTI's principal products include pre-cooked taco
meat, steak and chicken fajita meat, pre-cooked and
uncooked hamburger patties, soups, sauces and dehydrated beans.
CTI was purchased by Littlejohn & Co, LLC in April 2010.
During the twelve month period ended September 8, 2012 the company
has generated more than $700 million in revenues.
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
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the lead rating analyst and to the Moody's legal entity that has
issued the 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 changes CTI's outlook to positive; B2 CFR affirmed