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Related Issuers
Rating Action:

Moody's downgrades C&S to Ba3; outlook stable

31 Jan 2020

New York, January 31, 2020 -- Moody's Investors Service, ("Moody's") today downgraded C&S Group Enterprises LLC's ("C&S") corporate family rating to Ba3 from Ba2 and it probability of default rating to Ba3-PD from Ba2-PD. Moody's also downgraded the company's senior secured notes rating to B1 from Ba3. The outlook is stable. This concludes the ratings review which was initiated on December 11, 2019.

"Although the loss of Ahold revenue will be in increments through 2024, it will ultimately lower EBITDA significantly", Moody's Vice President Mickey Chadha stated. "If the loss of revenue and EBITDA is not offset by proportionate cost cuts or increased revenue and if the company does not reduce debt its leverage will remain elevated", Chadha further stated.

Downgrades:

..Issuer: C&S Group Enterprises LLC

.... Probability of Default Rating, Downgraded to Ba3-PD from Ba2-PD

.... Corporate Family Rating, Downgraded to Ba3 from Ba2

....Senior Secured Regular Bond/Debenture, Downgraded to B1 (LGD5) from Ba3 (LGD5)

Outlook Actions:

..Issuer: C&S Group Enterprises LLC

....Outlook, Changed To Stable From Rating Under Review

RATINGS RATIONALE

C&S' rating reflects the company's leading position in a highly fragmented industry, a moderate funded debt level, and good liquidity. The rating also reflects the risks associated with the company's high customer concentration, it's very thin margins, and its high fixed cost structure. C&S's debt/EBITDA is currently about 4.2 times. In December 2019 the company was notified by one of its largest customers, Koninklijke Ahold N.V. ("Ahold"), that Ahold will not be renewing its contract with C&S. Instead, Ahold intends to assume the procurement role in connection with their plans to transform their supply chain and distribution network operations. In fiscal 2019, C&S' net sales to Ahold accounted for $10.9 billion or 42% of its grocery and distribution sales. Absent any new business additions or other changes in the existing business, C&S's grocery wholesaling and distribution net sales to Ahold will decline to $10.1 billion, $9.2 billion, $5.1 billion, $1.6 billion and $1.1 billion for each of fiscal 2020, 2021, 2022, 2023 and 2024. C&S has agreed to sell certain assets to Ahold for a total purchase price of $271 million including its Chester, NY, facilities, ES3, LLC's York, PA facilities including fixtures and equipment at those facilities and its Bethlehem, PA facility and nearly 700 trailers. Proceeds from the sale could be used to reduce debt or be invested back into the company including for acquisitions as C&S could be compelled to grow top line through debt funded acquisitions if organic growth does not materialize. C&S' profitability has already been negatively impacted by the continued investment in its Warehouse Technologies business, and the loss of the significant revenue base makes the improvement in profitability of this division increasingly important.

The stable outlook reflects Moody's expectation that the company will be able to reduce costs in proportion to its revenue declines and/or reduce debt in order to prevent deterioration in credit metrics such that debt/EBITDA and EBITA/interest adjusted for leases and pensions will remain around 4.0 to 4.5 times and 1.5 to 2.0 times respectively for the next 12-18 months.

A rating upgrade would require a stable operating environment, increase in business volumes to at least partially offset the loss of the Ahold business, Warehouse Technologies business trending towards profitability, balanced financial policies particularly regarding future growth through acquisitions, sustained EBITA/interest above 2.0 times, and sustained debt/EBITDA below 4.0 times.

Any other material loss of revenue or negative impact on cash flow from serviced stores due to closures or divestitures or loss of any other material customer (other than Ahold) could result in a downgrade. Quantitatively, ratings could be downgraded if the company does not use proceeds from the asset sales to reduce debt and EBITA/interest is sustained below 1.5 or debt/EBITDA remains above 4.75 times.

C&S Group Enterprises LLC, issuer of the rated debt, is a financing subsidiary of C&S Wholesale Grocers Inc. and four affiliated operating companies. C&S Wholesale Grocers is a private distributor of groceries to food retailers in the U.S. The company is headquartered in Keene, New Hampshire and is owned by the Cohen family. Consolidated revenues are approximately $26 billion.

The principal methodology used in these ratings was Distribution & Supply Chain Services Industry published in June 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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.

Manoj Chadha
VP - Senior Credit Officer
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

Margaret Taylor
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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MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​
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