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Central Garden & Pet Company -- Moody's assigns a B1 rating to Central Garden and Pet's $400 million notes

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Rating Action: Moody's assigns a B1 rating to Central Garden and Pet's $400 million notesGlobal Credit Research - 16 Apr 2021New York, April 16, 2021 -- Moody's Investors Service, ("Moody's") today assigned a B1 rating to Central Garden & Pet Company's ("Central") $400 million senior unsecured notes due 2031. All other ratings are unaffected, including Central's Ba3 Corporate Family Rating. The rating outlook is stable.Net proceeds from the notes will be used to repay senior secured asset-based revolving credit facility borrowings and for general working capital purposes.Central has completed three acquisitions since December 2020. The company acquired DoMyOwn, an on-line retailer of professional grade pest control products, for approximately $83 million on December 18, 2020 followed by the acquisition of Hopewell Nursery, a wholesale nursery stock grower serving garden centers, retail nurseries, and landscape contractors, for $81 million on December 31, 2020. Lastly, Central acquired Green Garden Products, a provider of vegetable, herb and flower seed packets, seed starters and plant nutrients, for approximately $532 million on February 16, 2021. The acquisition of Hopewell Nursery and Green Garden Products occurred after Central's 1Q 2021 when it reported a cash balance of $608 million. Borrowings under the company's senior secured asset-based revolving credit facility were used to partially fund the acquisition of Green Garden Products while the other two acquisitions were funded with cash. As such, today's issuance allows Central to repay its revolving credit facility as well as replace a portion of its balance sheet cash that was used for these acquisitions.The following ratings/assessments are affected by today's action:New Assignments:..Issuer: Central Garden & Pet Company....Senior Unsecured Notes, Assigned B1 (LGD4)RATINGS RATIONALECentral Garden's Ba3 Corporate Family Rating reflects its moderate leverage with debt to Moody's adjusted EBITDA of around 2.9x and good operating performance. The rating is supported by the company's strong market position in pet and lawn & garden, good size with revenue around $2.8 billion, solid brand recognition among consumers, and moderate financial policies. Moody's views many of the company's products as consumer staples, which will provide earnings resilience during an economic downturn. The ratings are constrained by the seasonality of earnings and cash flows, weather dependency, exposure to volatile raw materials prices, the somewhat discretionary nature of its products, and by its highly concentrated customer base. The company's long-term growth plan also incorporates tuck-in acquisitions to expand its product offerings, especially within the pet business.The SGL2 speculative grade liquidity rating reflects Central's good liquidity highlighted by cash and short-term investments of about $608 million and approximately $198 million in LTM free cash flow as of December 26, 2020.ENVIRONMENTAL SOCIAL AND GOVERNANCE CONSIDERATIONSThe 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, Central and many other consumer products 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.We view Central's governance risk as low. As a public company, Central is subject to certain standards in terms of transparency, disclosures, management accountability, and compliance. The company is also committed to maintain disciplined financial policy. Central does not currently pay regular dividends and does not expect to pay regular dividends in the near future.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGThe stable outlook reflects Moody's view that Central will continue to operate in a specialized niche market and continue its growth strategy while maintaining disciplined financial policies. Moody's also assumes in the stable outlook that the company can manage through potential disruptions that may occur as a result of the coronavirus.The ratings could be downgraded if Central's operating performance deteriorates or if debt to EBITDA is sustained above 3.0x (outside of seasonal borrowings).The ratings could be upgraded if the company is able to meaningfully improve revenues, earnings, cash flow and credit metrics. In addition, if debt to EBITDA is sustained below 2x and there is a meaningful increase in revenues, the rating could be upgraded.The principal methodology used in this rating 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.Headquartered in Walnut Creek, California, Central Garden & Pet Company manufactures branded products and distributes third-party products in the lawn and garden and pet supplies industries in the United States. Sales approximated $2.8 billion for the twelve months ended December 26, 2020.REGULATORY DISCLOSURESFor 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_1243406.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.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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