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I AGREE
28 Apr 2011
New York, April 28, 2011 -- Moody's Investors Service today assigned a B3 rating to U.S.
Foodservice, Inc.'s ("USF") proposed $425 million
secured term loan due 2017 and a Caa2 rating to its proposed $400
senior unsecured notes issue due 2019. Additionally, given
the changes in the capital structure, Moody's adjusted to B3 from
B2, the ratings on the $1.96B senior secured term
loan. All other ratings for U.S. Foodservice,
Inc., including the B3 Corporate Family and Probability of
Default ratings, were affirmed. The rating outlook remains
stable.
Net proceeds from the transaction together with cash and ABL borrowings,
are expected to be used to redeem the $1.0 billion senior
unsecured notes due 2015. Moody's will withdraw the rating on the
2015 notes upon their full retirement. The assigned ratings are
subject to review of final documentation and no material change in the
terms and conditions of the transaction as advised to Moody's.
Additionally, USF also intends to extend the maturity of its $1.1
billion asset based revolving credit facility from 2013 to 2016 through
an amend and extend transaction. Subsequent to the completion of
the proposed amendment, the ratings on the asset based revolving
credit facility will be withdrawn.
New ratings assigned:
$425 million senior secured term loan due 2017 at B3 (LGD 3,
47%)
$400 million senior unsecured notes due 2019 at Caa2 (LGD 5,
86%)
Ratings affirmed and LGD point estimates adjusted include:
Corporate Family Rating at B3
Probability of Default Rating at B3
$1,100 million asset based revolving credit facility due
2013 at B2 (LGD 3, 43%) from B2 (LGD 3, 41%)
$521 million senior subordinated notes due 2017 at Caa2 (LGD 6,
93%) from Caa2 (LGD 6, 94%)
Rating downgraded:
$1,964 million senior secured term loan due 2014 to B3 (LGD
3, 47%) from B2 (LGD 3, 41%)
RATINGS RATIONALE
"The affirmation of USF's B3 Corporate Family Rating acknowledges the
continuing incremental improvement in its cash flows and credit metrics
resulting from a combination of improved product and customer mix,
supply chain optimization and disciplined expense reduction, though
there remains work to be done on all fronts," stated Moody's Senior
Analyst Charlie O'Shea. "The B3 rating also considers the fact
that the proposed financing is overall leverage neutral, as a result
of which the company remains highly leveraged with weak credit metrics
for its rating category."
While USF's performance has gained traction from an improved pricing
discipline, supply chain optimization and better vendor costing
terms, given its heavy interest burden and capital expenditure needs,
it will be difficult for the company to significantly reduce debt and
materially improve credit metrics purely from operating cash flows.
Additionally, Moody's expects the effect of higher fuel prices
on USF's profitability to be somewhat muted in the near to medium
term, given the company's ability to assess fuel surcharges,
as well as hedge rising fuel costs through forward purchase contracts.
The B3 rating on the proposed $425 million secured term loan considers
its collateral package consisting of second liens on assets securing the
$1.1 billion asset-based revolving credit facility
and first lien on all other assets of the company, excluding the
assets securing the asset-based securitization program and the
CMBS facility. The B3 rating also reflects the credit support provided
by the proposed $400 million senior unsecured notes below the secured
term loan in the consolidated capital structure.
The Caa2 rating on the proposed $400 million unsecured notes reflects
their junior position in the capital structure due to their effective
subordination to the secured debt above it.
The adjustment to B3 of the $1.96 billion term loan,
results from its weakened position in the capital structure due to the
proposed net $600 million repayment of unsecured notes that had
previously provided support for these securities.
The stable rating outlook is based on our expectation that USF's
credit metrics will continue to incrementally improve to a level that
is more representative of the current B3 rating. The stable outlook
also reflects our view that the company's qualitative factors --
a solid franchise and market position -- help to balance
out its weak quantitative profile.
At present, there is minimal upward pressure on the company's
ratings given its highly leveraged profile and the aggressive financial
policy mandated by its sponsors. Absent a significant improvement
in operations, we expect only modest improvements in credit metrics.
Quantitatively, an upgrade could occur if debt/EBITDA sustains at
6 times, EBITA/interest remains above 1.25 times, and
financial policy remains tempered. In the event that the company's
overall liquidity profile deteriorates, which includes the failure
to refinance the July 2012 CMBS maturity in a timely manner, the
ratings could be downgraded. Also, if credit metrics do not
improve such that debt/EBITDA begins making tangible progress towards
7 times, or if EBITA/interest falls below 1 time, ratings
could be downgraded.
The principal methodologies used in this rating were Loss Given Default
for Speculative-Grade Non-Financial Companies in the U.S.,
Canada and EMEA published in June 2009, as well as other rating
methodologies.
U.S. Foodservice, Inc. ("USF")
is a leading North American food service marketing and distribution company,
with annual revenues of around $19 billion.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Analytics information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
New York
Charles O'Shea
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Kendra M. Smith
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's rates U.S. Foodservice's proposed credit facilities and affirms B3 Corporate Family Rating
No Related Data.
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