New York, July 20, 2020 -- Moody's Investors Service, ("Moody's") today
upgraded the corporate family rating and probability of default rating
of The Fresh Market, Inc. to Caa1 and Caa1-PD from
Caa2 and Caa2-PD respectively. Moody's also upgraded
the rating of the company's senior secured notes to Caa1 from Caa2.
The outlook is stable.
"Fresh Market's topline and EBITDA had been improving for the last
year and got a further boost from pantry loading due to the coronavirus
pandemic as consumers increased transaction sizes while lowering the number
of trips to the store", Moody's Vice President Mickey
Chadha stated. "Although the recent unprecedented sales growth
is expected to moderate in the back half of the year and the industry
will remain highly competitive we expect credit metrics will be stronger
in the next 12 -18 months than fiscal 2019," Chadha further
stated.
Upgrades:
..Issuer: Fresh Market, Inc. (The)
.... Probability of Default Rating,
Upgraded to Caa1-PD from Caa2-PD
.... Corporate Family Rating, Upgraded
to Caa1 from Caa2
....Senior Secured Regular Bond/Debenture,
Upgraded to Caa1 (LGD4) from Caa2 (LGD4)
Outlook Actions:
..Issuer: Fresh Market, Inc. (The)
....Outlook, Remains Stable
RATINGS RATIONALE
The Fresh Market, Inc.'s Caa1 corporate family rating reflects
the company's high leverage, relatively small scale, increasing
competition, and geographic concentration in the Southeast.
Although improving, leverage will still be high with debt/EBITDA
in the 6.0 to 6.3 times range with EBIT/interest below 1.0
time (including Moody's standard lease adjustments) in teh next 12 months.
Management has undertaken a number of strategic initiatives to improve
operating performance including price investments, and the emphasis
on higher quality meats and fresh produce and perishables which resulted
in improving same store sales and average customer transaction size in
fiscal 2019. The pantry loading and panic buying by consumers due
to the coronavirus pandemic further improved same store sales by 12.9%
in the first quarter of fiscal 2020 ending April 26th, 2020 with
the basket size up 25.2%. Profitability and liquidity
have improved as promotional cadence has been lower and shrink has improved
as inventory turnover has been quicker as demand remains high.
Moody's expects same store sales to be strong in the second quarter but
start to moderate in the back half of the year and into 2021 as buying
patterns start to normalize. In addition to the volatility in financial
policies inherent with ownership by a financial sponsor, our ratings
also reflect the business environment which will remain highly competitive
and as government stimulus programs expire the weak economic environment
will result in increasing pricing pressure as promotional activity will
accelerate.
Ratings also reflect The Fresh Market's attractive market niche and its
above average income demographic. The company's liquidity is good
with about $141 million of unrestricted cash and restricted cash
of $25.5 million as cash collateral for LC's on the
balance sheet at April 26, 2020. Moody's expects the
company to remain free cash flow positive for the next 12 months.
The company does not have a revolving credit facility but issued $135
million super priority senior secured notes maturing 2025 and proceeds
from these notes remain as cash on the balance sheet.
The stable outlook reflects Moody's expectation that credit metrics and
profitability will improve in the next 12 months and liquidity will remain
good.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Ratings could be upgraded if same store sales growth remains positive
accompanied with margin stability. In addition, an upgrade
would require maintaining good liquidity. Quantitatively,
an upgrade would require debt/EBITDA sustained below 5.5 times
and EBIT/interest sustained above 1.0 times with financial policies
that support credit metrics at these levels.
Ratings could be downgraded if operating performance does not continue
to improve and positive trends in same store sales and operating margins
do not continue such that debt/EBITDA is sustained above 7.0 times
or EBIT/interest remains below 1 times. Ratings may also be downgraded
if debt is not refinanced well in advance of its maturity or if liquidity
erodes or financial policies become detrimental to the interest of debt
holders.
The Fresh Market, Inc. is a specialty grocery retailer.
The Company operates 159 stores in 22 states across the United States.
The company is owned by Apollo Global Management, LLC. Revenues
for the LTM period ending April 26, 2020 totaled $1.6
billion.
The principal methodology used in these ratings was Retail Industry published
in May 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1120379.
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
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These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
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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.
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
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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
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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