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Rating Action: Moody's affirms B&G Food's B1 CFR, downgrades first lien rating to Ba2
Global Credit Research - 03 Dec 2020
New York, December 03, 2020 -- Moody's Investors Service, ("Moody's") affirmed B&G Foods, Inc.'s (B&G") B1 Corporate Family Rating ("CFR"), B1-PD Probability of Default Rating and B2 senior unsecured ratings. Moody's also downgraded the ratings on B&G's $700 million senior secured first lien revolving credit facility due 2022 and upsized $671.625 million senior secured first lien term loan due 2026 to Ba2 from Ba1. Moody's additionally assigned a Ba2 rating to B&G's proposed new $800 million senior secured first lien revolving credit facility due 2025. The Ba2 rating on B&G's existing revolver due 2022 will be withdrawn once the new facility closes. The outlook remains stable and the Speculative Grade Liquidity Rating remains SGL-1.
The rating actions are in response to B&G's financing for the $550 million acquisition of the Crisco brands of oil and shortening from J.M. Smucker Company. B&G financed the acquisition with a combination of revolver draw and cash on hand.
Moody's affirmed B&G's B1 CFR and maintained the stable outlook because Crisco is a strong well-established brand in shortening and vegetable oil that enhances the company's scale and product diversity, and Moody's expects leverage to remain within expectations for the rating given the company's operating profile. B&G is also generating strong growth and higher free cash flow in 2020 because the coronavirus pandemic has caused an increase in at-home food consumption. Moody's projects a gradual return to more balanced at-home/out-of-home food consumption will lead to mid-to-high single digit organic revenue and EBITDA declines in 2021. However, Moody's expects that B&G will maintain very good liquidity, generate $70-80 million of free cash flow in 2021 and sustain debt-to-EBITDA leverage below 6x over the next 12 to 18 months. Moody's projects that debt-to-EBITDA leverage will increase from an estimated 5.7x at close (LTM October 3, 2020 pro forma for the Crisco acquisition) to 5.9x in 2021, which is a level that provides limited flexibility for additional debt-funded acquisitions within Moody's expectations for the B1 rating.
For the quarter ended October 3, 2020, revenues increased about 22% year-over-year and Moody's adjusted EBITDA increased about 20% year-over-year compared to the prior year's quarter.
The downgrade of B&G's senior secured first lien credit rating to Ba2 from Ba1 reflects a higher mix of secured debt in the capital structure as a result of the company's $300 million senior secured first lien term loan add-on. The higher level of secured debt weakens recovery prospects for secured debt in the event of a default.
The following ratings/assessments are affected by today's actions:
..Issuer: B&G Foods, Inc.
....Senior Secured 1st Lien Revolving Credit Facility, Assigned Ba2 (LGD2)
..Issuer: B&G Foods, Inc.
.... Corporate Family Rating, Affirmed at B1
.... Probability of Default Rating, Affirmed at B1-PD
....GTD Senior Unsecured Notes, Affirmed at B2 (LGD5)
..Issuer: B&G Foods, Inc.
....Senior Secured 1st Lien Term Loan, Downgraded to Ba2 (LGD2) from Ba1 (LGD2)
....Senior Secured 1st Lien Revolving Credit Facility, Downgraded to Ba2 (LGD2) from Ba1 (LGD2)
Outlook Actions: ..Issuer: B&G Foods, Inc.
....Outlook, Remains Stable
B&G's B1 CFR largely reflects the company's high, but declining, financial leverage and relatively aggressive financial policies, highlighted by large dividend payments and the periodic use of debt to fund potentially large acquisitions. The rating also reflects B&G's small but improving scale relative to more highly rated industry peers and its acquisitive growth strategy. The company's debt-to-EBITDA for the twelve months ended October 3, 2020 was 5.2x on a Moody's-adjusted basis, but is projected to increase to 5.9x in 2021 due to the Crisco acquisition and a reduction in revenue and earnings in 2021 as at-home food consumption moderates along with an easing of the coronavirus pandemic. The projected leverage weakly positions the company within the B1 rating category. B&G's credit profile benefits from relatively high margins, consistent operating cash flow generation from a broad food product portfolio with low cyclical demand volatility, and a largely successful track record of integrating acquisitions. B&G's willingness to dividend a high portion (targeted at roughly 50% - 65%) of its cash from operations less capital spending is partially mitigated by the consistency of its cash flow generation.
Moody's assumes in the B1 rating that B&G will remain opportunistically acquisitive, and that debt to EBITDA will be sustained below 6x over the next 12 to 18 months. B&G publicly stated net debt to EBITDA guidance of 4.5x to 5.5x (based on management's calculations) is an important factor in our leverage projection and Moody's estimates net leverage on the company's calculation basis is approximately 5.25x pro forma for the acquisition.
B&G's SGL-1 rating reflects very good liquidity based on approximately $15 million of existing cash, $78 million of annual projected free cash flow in 2021, $580 million of remaining undrawn capacity on the revolver, and no debt maturities through 2024. The cash sources provide ample resources for the $7.5 million of required annual term loan amortization, reinvestment needs and potential acquisitions.
The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Our analysis has considered the effect on the performance of corporate assets from the current weak US economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high. Notwithstanding, B&G and many other packaged food companies are likely to be more resilient than companies in other sectors, although some volatility can be expected through 2021 due to uncertain demand characteristics, channel shifting, and the potential for supply chain disruptions and difficult comparisons following these shifts. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
B&G's ratings could be upgraded if the company is able to sustain debt-to-EBITDA below 5.0x while pursuing its acquisition based growth strategy, improve retained cash flow (RCF)-to-net debt such that it approaches 10%, and maintain very good liquidity. Alternatively, ratings could be downgraded if adjusted debt-to-EBITDA is sustained above 6.0x, RCF-to-net debt is sustained below 5%, or if liquidity deteriorates.
B&G Foods, Inc. ("B&G", NYSE: BGS) based in Parsippany, New Jersey, is a publicly traded manufacturer and distributor of a diverse portfolio of largely branded, shelf-stable food products, many of which have leading regional or national market shares in niche categories. The company also has a significant presence in frozen food following the 2015 acquisition of Green Giant and maintains a small presence in household products. B&G's brands include Back to Nature, B&G, B&M, Cream of Wheat, Dash, Green Giant, Las Palmas, Le Sueur, Mama Mary's, Maple Grove Farms, New York Style, Ortega, Polaner, Spice Islands, and Victoria, among others. B&G sells to a diversified customer base including grocery stores, mass merchants, wholesalers, clubs, dollar stores, drug stores, the military and other food service providers. B&G generated net sales for the twelve months ended October 3, 2020 of approximately $2.2 billion pro forma for the Crisco acquisition.
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.
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.
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.
Frank Henson Vice President - Senior Analyst 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
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