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Rating Action:

Moody's downgrades Tupperware's CFR to Caa3; debt repurchase likely a distressed exchange

28 May 2020

New York, May 28, 2020 -- Moody's Investors Service, ("Moody's") today downgraded Tupperware Brands Corporation's ("Tupperware") Corporate Family Rating (CFR) to Caa3 from B3, its Probability of Default Rating to Caa3-PD from B3-PD and its senior unsecured notes rating to Ca from Caa2. The Speculative Grade Liquidity Rating is unchanged at SGL-4. The outlook remains negative.

These actions follow Tupperware's May 26 announcement that it would launch a tender offer to purchase for cash up to $175 million of its $600 million senior unsecured notes due June 1, 2021. [1] The company expects to spend about $79 million to retire roughly one third of the notes based on the June 8 early tender deadline offer price of $450 per $1,000 of principal. The transaction represents a significant discount to par that indicates a loss of value for creditors and is material relative to the company's roughly $1.2 billion of debt incorporating incremental revolver drawdowns in late March. If completed based on the terms outlined, Moody's would consider the transaction a distressed exchange, which is a default under the rating agency's definition. As such, upon close of the transaction, Moody's would append the PDR with an "/LD" designation to indicate a limited default, which will be removed after approximately three business days. Bond investors that tender after June 8 and by June 22 would receive $420 for $1,000 of principal.

The downgrade to a Caa3 CFR reflects that Tupperware's significant earnings erosion in 2020, the difficulty of executing a meaningful turnaround in the current recessionary economic environment, high leverage, approaching maturity of the remaining senior unsecured notes, and risk of a covenant violation create elevated default risk. As of the twelve months ended March 28, 2020, Tupperware's debt to EBITDA (including Moody's adjustments) was at roughly 5.1x, and Moody's estimates that debt to EBITDA will exceed 7.5x by the end of 2020 because of weakening sales and earnings despite the debt reduction from the proposed transaction. Tupperware's revenue and earnings continue to decline in 2020, and efforts to contain the coronavirus are weakening economic growth globally and add further operating pressure on Tupperware.

The company's independent sales force is a significant revenue driver across the company's direct selling business model, and the ongoing declines in active representatives continues to negatively affect business performance. Social elements including changes to consumer shopping patterns and the attractiveness of individuals serving as Tupperware sales representatives are also negatively affecting the company's direct selling business model. Recent senior management appointments bring important direct selling and consumer product experience, but the magnitude of the operating challenges and difficult economic environment present considerable headwinds to materially improving earnings and cash flow in a short time period even with good execution and cost reductions. The downgrade also reflects weak liquidity, highlighted by a $425 million debt maturity in June 2021 assuming the tender is completed at the proposed terms and the risk of additional distressed exchanges or a more comprehensive balance sheet restructuring over the next 12 months. Continued significant revenue and operating cash flow erosion will make it challenging for Tupperware to economically refinance the 2021 notes at par. Moody's believes the current level of debt is not sustainable without a significant operational turnaround.

The negative outlook reflects uncertainty regarding the company's ability to quickly stabilize declines in its sales force, operating earnings and cash flow, and to refinance the bonds at par. Moody's also recognizes the challenges that Tupperware will face given governmental mandates for social distancing that directly contrasts with the company's inherent direct selling business model.

The following is a summary of Moody's rating actions:

Tupperware Brands Corporation

Ratings downgraded:

Corporate Family Rating to Caa3 from B3;

Probability of Default Rating to Caa3-PD from B3-PD;

Senior unsecured rating to Ca (LGD5) from Caa2 (LGD5);

Outlook:

The rating outlook on all ratings remains negative.

RATINGS RATIONALE

Tupperware's Caa3 CFR reflects the company's elevated financial leverage and corporate governance risks associated with management's approach to capital structure and liability management in the face of a number of operating challenges. Tupperware faces challenges related to its core business, including returning its direct selling business to long term revenue growth. Moody's believes that competitive, economic, and structural headwinds will continue to create challenges for the company to stem revenue declines and quickly execute an operational turnaround. The ratings also reflects elevated default risk related to the June 2021 note maturity amid weak operating performance, economic conditions, and high financial market volatility. The company's unique direct selling business model is highly reliant upon its ability to recruit and retain sales representatives around the world. There is risk to direct sellers in developing markets as increasing retail penetration, e-commerce activity, and competition gradually diminish the current distribution advantages. Developing markets also tend to include more volatile economies and foreign exchange rate exposure. In addition, the company's modest scale relative to other consumer product peers and sensitivity to discretionary consumer spending heighten credit risks. The ratings are supported by Tupperware's well-recognized brand name supported by good product development capabilities, and global selling and distribution capabilities.

The SGL-4 Speculative Grade Liquidity rating reflects Tupperware's weak liquidity. Tupperware's $600 million unsecured bonds are due in June 2021 and Moody's does not believe the company has sufficient cash, free cash flow and unused revolver capacity to address the maturity. Moody's expects the company to generate negative free cash flow over the next 12 months of about $(15) to $(20) million reflecting weak earnings and cash costs necessary to restructure the business.

Social risks are a meaningful consideration given the company's direct sales business model. The current potential impact of the coronavirus on the sales force and mandates for social distancing, changing demographics, economic and employment conditions can affect the company's ability to recruit and retain its sales force and can also influence how consumers shop. The business model can also come under scrutiny by regulators. Tupperware also faces important corporate governance challenges reflecting meaningful turnover at the senior management ranks, although Moody's views the focus of new senior management on consumer needs to create long-term sustainable value and turn around the business is positive. Environmental considerations are not considered material to Tupperware's credit profile, but the company must monitor its land, water, energy and raw material usage.

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 consumer products sector has been one of the sectors affected by the shock given its sensitivity to consumer demand and sentiment. More specifically, the weaknesses in Tupperware's credit profile, including its exposure to multiple affected countries have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and the company remains vulnerable to the outbreak continuing to spread. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Today's action in part reflects the impact on Tupperware of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Tupperware's ratings could be downgraded if the company is unable to successfully refinance its upcoming 2021 debt maturities in a timely manner. Ratings could also be downgraded if the company does not stabilize sales representative counts, revenue and earnings. Deteriorating liquidity or an adverse shift in the regulatory environment could also lead to a downgrade.

Given the negative outlook ratings are unlikely to be upgraded. That said, before Moody's would consider an upgrade, Tupperware would need to materially improve its operating performance. The company would also need to reduce leverage, and address the note maturity for an upgrade to be considered.

Tupperware Brands Corporation is a global manufacturer and direct seller of consumer products across multiple categories including food storage, preparation and serving items, and beauty and personal care products. Products are sold through a worldwide sales force that includes approximately 3 million independent dealers. Tupperware is publicly traded and generated approximately $1.7 billion in annual revenue.

The principal methodology used in these ratings was Consumer Packaged Goods Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1202237. 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.

REFERENCES/CITATIONS

[1] Tupperware 8K 26-May-2020

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.

Chedly Louis
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

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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