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Rating Action:

Moody's rates Central Garden's proposed subordinated debt offering B3

24 Feb 2010

New York, February 24, 2010 -- Moody's Investors Service rated Central Garden & Pet Company's ("Central Garden") proposed new $300 million subordinated notes B3, while at the same time affirming its corporate family rating at B1 and its probability of default rating at B1. The SGL 2 speculative grade liquidity rating was affirmed. The rating on the existing $150 million subordinated notes will be withdrawn if the new debt offering and tender offer closes on the expected terms. The ratings on the secured credit facility (term loan and revolver) will be upgraded to Ba2 if the new debt offering closes on its anticipated terms. The rating outlook remains positive.

Proceeds from the new offering are expected to be used to repay the existing subordinated notes and to repay a portion of the $300 million term loan.

The B1 corporate family rating reflects Central Garden's modest size, limited geographic diversification, seasonality and weather dependency of its business, and single digit operating margins. The rating also incorporates the challenges posed by its large retail customers and the significant competition inherent in the highly fragmented lawn and garden, and pet supply industries. The rating is supported by the company's strong market position in pet and lawn & garden, an improved liquidity profile and good credit metrics highlighted by modest financial leverage of around 3x and good cash flow to debt ratios.

The SGL 2 speculative grade liquidity rating reflects the company's cash balances of over $85 million and the expectation of roughly $100 million of annual free cash flow in the near to mid term. The liquidity rating is also supported by having full access to a $350 million revolving credit facility and ample cushion under its financial covenants. Liquidity is constrained by the upcoming maturity of its revolving credit facility in February 2011 and by the inherent volatility in cash flow due to weather, seasonality and commodity costs.

The positive outlook incorporates our expectation of continued operating performance improvement and continued strong credit metrics even if Central Garden were to make a modest acquisition. For example, financial leverage temporarily increasing to around 4x because of a strategic acquisition is consistent with the positive outlook. The positive outlook also considers our view that the company will maintain its strong liquidity profile and will likely renew its revolving credit facility well before its maturity date.

The following rating was assigned:

$300 million subordinated notes at B3 (LGD 5, 80%)

The following ratings were affirmed:

Corporate family rating at B1;

Probability of default rating at B1;

$350 million senior secured revolving credit facility due 2011 at Ba3 (LGD3, 39%);

$300 million senior secured term loan due 2012 at Ba3 (LGD3, 39%);

Speculative grade liquidity rating at SGL 2

The last rating action for Central Garden was on January 26, 2010 where Moody's upgraded the corporate family rating to B1 and revised the rating outlook to positive.

The principal methodology used in rating Central Garden was Moody's Global Packaged Goods Industry methodology published in July 2009 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in rating Central Garden can also be found in the Rating Methodologies sub-directory on Moody's website.

Central Garden & Pet Company, located in Walnut Creek, California, manufactures an array of branded lawn and garden and pet supply products, and operates as a distributor for other manufacturers' products in both of these segments. Sales were $1.6 billion for the twelve months ended December 31, 2009.

New York
Kevin Cassidy
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
John Diaz
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's rates Central Garden's proposed subordinated debt offering B3
No Related Data.
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