Moody’s Investors Service re-rated the Corporate Family Rating of Bumble Bee Holdings, Inc. (Bumble Bee) to B3 from B2, as well as its Probability of Default Rating to B3-PD from B2-PD. Concurrently, Moody’s changed the company's outlook to stable from negative.
The new rating reflects Moody’s view that leverage has increased to levels that are more appropriate for the B3 rating category, largely driven by EBITDA weakness spurred by relatively high fish costs and the inability to fully pass on those costs to consumers through higher pricing. While we believe management has done an effective job managing the company’s margins in a difficult operating environment, shelf-stable seafood industry fundamentals no longer support the degree of deleveraging anticipated at the time of the company’s 2011 dividend recapitalization.
The following ratings have been changed for Bumble Bee Holdings, Inc.:
Corporate Family Rating to B3 from B2;
Probability of Default Rating to B3-PD from B2-PD;
USD 565 million 9% senior secured notes due 2017 to B3 (LGD4, 54%) from B2 (LGD4, 52%);
The following ratings were downgraded at Bumble Bee Holdco S.C.A., a parent company of Bumble Bee Holdings, Inc.:
USD 150 million senior unsecured HoldCo PIK toggle notes due 2018 to Caa2 (LGD6, 93%) from Caa1 (LGD6, 93%).
The rating outlook is stable.
The B3 corporate family rating incorporates Bumble Bee’s high financial leverage, aggressive financial policies, limited category diversification, and the commodity-like nature of the North American shelf stable seafood industry. The rating is supported by Bumble Bee’s top-tier position in the North American shelf-stable seafood category, well-established brand names, and low cost sourcing capabilities. In addition, the rating benefits from Bumble Bee’s historical ability to maintain relatively healthy margins in a challenging operating environment, given its ability to raise prices and focus on cost cutting initiatives. The rating incorporates our expectation that the company will generate positive free cash flow during the next twelve months and pay down debt over time.
The stable outlook reflects Moody’s expectation for ongoing margin pressures driven by relatively high fish and other commodity input costs, partially offset by cost saving initiatives and a more favorable pricing environment as consumers adjust to higher prices. In addition, while volumes will likely continue to decline year-over-year, Moody’s believes the rate of decline will continue to slow as it has during the latter half of FY12 into 1Q13 and does not expect the rate of decline to approach the high levels reached in 2012.
The ratings could be upgraded if Bumble Bee is able to improve profitability and repay debt, such that leverage is sustained below 6.0 times. In addition, the company must maintain a good liquidity profile and generate positive free cash flow. Alternatively, the ratings could be downgraded if Bumble Bee’s leverage climbs above 8.0 times or if liquidity deteriorates.
Bumble Bee Holdings Inc. (Bumble Bee), headquartered in San Diego, California, is believed to be the largest producer and marketer of shelf-stable seafood in North America and maintains a leading share in many segments of the US and Canadian shelf-stable seafood categories, including albacore tuna, light meat tuna, salmon, sardines, clams and other specialty seafood products. The company’s products are primarily branded under the Bumble Bee name in the US and Clover Leaf and Brunswick names in Canada. Bumble Bee was acquired by Lion Capital in December 2010. Revenues for the twelve months ending December 31, 2012 were approximately USD 1 billion.