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Announcement:

Moody's changes CTI's outlook to positive; B2 CFR affirmed

12 Dec 2012

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 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.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a 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 Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's 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 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.

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
No Related Data.
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