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Rating Action:

Moody's downgrades Blue Ribbon, LLC's ratings to Caa1 from B3, outlook negative

25 Mar 2020

New York, March 25, 2020 -- Moody's Investors Service, ("Moody's") today downgraded Blue Ribbon, LLC's ("Blue Ribbon") CFR and senior secured ratings to Caa1 from B3. The Probability of Default rating was downgraded to Caa1-PD from B3-PD. The outlook remains negative.

The downgrade reflects refinancing risk in the current volatile environment given its near-term revolver maturity, high debt to EBITDA leverage, an aggressive financial policy, particularly with respect to back up liquidity, and challenges to grow volumes in the core business. Leverage, which was over 7 times as of September 2019, is expected to moderate only slightly to closer to 7 times by year end. The negative outlook reflects the fact that Blue Ribbon's revolving credit facility is current with the expiration set for September 30, 2020 following the most recent amendment which extended the maturity by only four months. The absence of a revolving credit facility would weaken the company's liquidity despite good internal liquidity, including approximately $15 million of cash on hand at the end of December. The revolver was reduced from $95 million to $36 million when the maturity date was extended in the fall of 2019. The revolver is currently undrawn but the company relies on the revolver for letters of credit supporting its brewing arrangement with Molson Coors. Also, the revolver is an important alternate liquidity source in the event of unexpected operating challenges, which are increasingly likely given the severe disruptions that are being caused by the spread of the coronavirus in the US. It is Moody's understanding the Company will continue to discuss a refinancing or extension of the revolver but given the volatility and tight liquidity in the markets, refinancing risk is currently heightened. Its term facility will mature in November 2021 which will also need to be addressed in the near term. A longer-term refinancing that addresses these upcoming maturities could result in the stabilization of the outlook and, assuming that the alcoholic beverage market has also stabilized, a potential upgrade.

Blue Ribbon, LLC Ratings downgraded:

Corporate Family Rating to Caa1 from B3

Probability of Default rating to Caa1-PD from B3-PD

Senior Secured First lien term loan due 2021 to Caa1 (LGD3) from B3 (LGD3)

Rating assigned:

Senior Secured Revolving Credit facility due September 2020 at Caa1 (LGD3)

Outlook remains negative

RATINGS RATIONALE

Blue Ribbon's Caa1 Corporate Family Rating reflects its near-term revolver maturity, high financial leverage (Debt to EBITDA in the mid 7 times range including Moody's adjustments), small scale and its heavy reliance on its largest brand, Pabst Blue Ribbon (PBR), which accounts for nearly half of sales and has seen slowing revenue growth and recent volume declines. The company has seen top line declines for the last several years as it has downsized its hard soda portfolio and exited the hard cider business. Further, the current disruption related to the coronavirus adds uncertainty about the ability of the company to continue to take pricing to offset volume declines. Moody's expects that the company will continue to face tough competition from larger competitors. While operating margins have improved in recent years, they are still thin relative to larger beer producers. Blue Ribbon also has more limited geographic diversity and small scale compared to other beer companies and to other beverage companies in general. The rating is supported by its well-known, iconic brands, the strong market position of its largest brand as one of the most affordable beers in its category, success of certain recent brand additions and partnerships, minimal need for working capital and capital investment, and good cash flow. Its portfolio includes more than 30 active brands that are helping to revitalize and premiumize its portfolio. While the beer category has been in decline in the US for some time, Blue Ribbon has successfully taken pricing which helps to mitigate the volume declines. In November, 2018 the company settled its lawsuit with MillerCoors, extending the length of the co-packing arrangement through 2024, and on January 6, 2020, it entered into an agreement with Molson Coors Beverage Company giving it an option to purchase one of that company's brewing facilities located in Irwindale, California. In addition, in November 2019, Blue Ribbon announced that it had reached an agreement to transition its production to City Brewing. This removed the uncertainty surrounding the phase out of the Molson Coors relationship. The company recently extended its revolver maturity to September 30, 2020 from May 13th. Moody's considers liquidity to be weak because of the near-term maturity and limited availability under the revolver because of significant Letters of Credit required against the facility.

The rating could be upgraded if the company improves its liquidity, provides visibility into a longer- term operating plan, generates good and predictable cash flows, successfully executes its growth strategies to support sustained top line and operating profit expansion, and reduces leverage. In addition, an upgrade would require that leverage is reduced such that debt to EBITDA (including Moody's standard adjustments) is below 6.5x.

The rating could be downgraded if the company fails to address liquidity including its alternate liquidity arrangements, if operating performance weakens such that EBIT/interest falls below 1x, debt/EBITDA is sustained above 8x, or free cash flow becomes negative. In addition, leveraged acquisitions, or leveraging transactions including substantial dividend distributions before debt/EBITDA declines below 5x, could also lead to a downgrade. The execution of a distressed exchange could result in a default.

Environmental, Social and Governance considerations:

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial credit implications of public health and safety. For more information on research on and ratings affected by the coronavirus outbreak, please see moodys.com/coronavirus.

Like other alcoholic beverage companies, Blue Ribbon monitors its social risks closely, including product quality and safety, clean labeling and messages about alcohol content and responsible consumption. While the alcoholic beverage industry is subject to some risk due to health concerns and the impact of drunk driving, Blue Ribbon and the industry as a whole has made meaningful efforts to disclose the risks and promote moderate consumption of alcoholic beverage products.

Blue Ribbon's environmental impact remains low and the associated risks are limited. Environmental considerations are not a material factor in the rating.

Blue Ribbon's governance is influenced by its private ownership. Like other Private Equity sponsored firms, it has been comfortable operating with high financial leverage and recently, with very limited external alternate liquidity. We view private equity ownership and aggressive financial policies as a risk, however management has recently indicated that it would aim to reduce leverage to 5 times or under.

The principal methodology used in these ratings was Alcoholic Beverages Methodology published in February 2020. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Los Angeles, California, Blue Ribbon, LLC (parent company of Pabst Brewing Company) is one of the largest privately held independent brewers in the US, though well behind market leaders in scale, with a portfolio of iconic American beer brands. Major brands in the company's portfolio include Pabst Blue Ribbon, Lone Star, Rainier, Old Milwaukee, Colt 45, Schlitz and Not Your Father's hard sodas. The company also has a long-term arrangement to market and distribute Tsingtao in the US. The company is owned by a consortium of private investors. Annual net sales for 2019 are expected to reach approximately $500 million.

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.

Linda Montag
Senior Vice President
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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