New York, April 23, 2020 -- Moody's Investors Service, ("Moody's") today
downgraded The Chefs' Warehouse, Inc.'s ("Chefs'") Corporate
Family Rating (CFR) to B2 from B1 and Probability of Default Rating (PDR)
to B2-PD from B1-PD. In addition, Moody's downgraded
Chefs' senior secured bank credit facility to B2 from B1. Chef's
Speculative Grade Liquidity was also downgraded to SGL-3 from SGL-2.
The outlook was changed to negative from stable.
"Chefs' operating performance will weaken as its core customer base,
independent restaurants, come under significant pressure as a result
of widespread restaurant closures in response to COVID-19" said
Vice President, Christina Boni. Chef's niche focus
on independent operators and modest scale relative to the industry leaders
leave it more vulnerable to the weakening financial health of its customers
as its adjusts its cost structure to meet lower demand levels",
Boni added.
Downgrades:
..Issuer: The Chefs' Warehouse, Inc.
.... Probability of Default Rating,
Downgraded to B2-PD from B1-PD
.... Speculative Grade Liquidity Rating,
Downgraded to SGL-3 from SGL-2
.... Corporate Family Rating, Downgraded
to B2 from B1
....Senior Secured Bank Credit Facility,
Downgraded to B2 (LGD4) from B1 (LGD3)
Outlook Actions:
..Issuer: The Chefs' Warehouse, Inc.
....Outlook, Changed To Negative From
Stable
RATINGS RATIONALE
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. The food distribution
sector is highly exposed to the restaurant sector, one of the sectors
most significantly affected by the shock given its sensitivity to widespread
unit closures, consumer demand and sentiment. More specifically,
Chefs' Warehouse remains vulnerable to the outbreak continuing to
spread. We regard the coronavirus outbreak as a social risk under
our ESG framework, given the substantial implications for public
health and safety. Today's actions reflect the impact on Chefs'
Warehouse of the breadth and severity of the shock, and the broad
deterioration in credit quality it has triggered.
The Chefs' Warehouse, Inc. B2 corporate family rating reflects
its adequate liquidity as supported by its approximately $175 million
of cash following borrowing under its revolving credit facility.
The rating also reflects its position as a premier distributor of specialty
food products in the United States and Canada. The company benefits
from serving customers a product portfolio with a deep selection of specialty
and center-of-the-plate food products that differentiates
its offering from the larger, traditional broadline foodservice
distributors. The company has been able to command solid operating
margins relative to its peers. Nonetheless, its scale is
remains modest as revenue and EBITDA are much smaller than its relative
public company foodservice industry peers. A key credit constraint
is the risk that Chefs' customer base may shrink as a result of
the current widespread restaurant closures. Chef's niche
focus is to independent operators who Moody's views as having riskier
credit profiles with weaker liquidity providing them with less ability
to withstand their closure in response to COVID-19. Acquisitions
have historically been integral to its growth.
The company's speculative grade liquidity rating was downgraded
from an SGL-3 to SGL-2 based on its revolver being almost
fully accessed combined with expected deterioration in its internally
generated cash flow. Its adequate liquidity is supported by its
cash position of approximately $175 million in March 2019 following
a $100 million draw on its revolver.
The negative outlook reflects Moody's view that Chefs' operating performance
and credit metrics will remain under considerable pressure given its exposure
to independent restaurants which are expected to be hurt by the disruption
of COVID-19 and the ensuing weakness in consumer demand.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Factors that could result in an upgrade include an ability to increase
its scale while maintaining debt to EBITDA around 4.5 times and
EBITA to interest above 2.25 times on a sustained basis.
An upgrade would also require Chefs' maintaining at least good liquidity.
Factors that could result in a downgrade include leverage on a debt to
EBITDA basis of around 5.5 times or EBITA coverage of interest
below 1.75 times on a sustained basis. A deterioration in
liquidity for any reason could also result in a downgrade. The
ratings could also be negatively impacted in the event Chefs' financial
strategy towards acquisitions or shareholder returns became more aggressive.
The Chefs' Warehouse, Inc. distributes specialty food products
to menu-driven independent restaurants, fine dining establishments,
country clubs, hotels, caterers, culinary schools,
bakeries, patisseries, chocolatiers, cruise lines,
casinos, and specialty food stores in the United States and Canada.
The company generated net sales of $1.6 billion for the
twelve months ended December 27, 2019.
The principal methodology used in these ratings was Distribution &
Supply Chain Services Industry published in June 2018 and available at
https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1121974.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
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.
Christina Boni
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
