Moody's assigns Caa1 rating to Dole Food's proposed US$275M in junior secured notes, affirms all of Dole's other ratings
October 18, 2013
– Moody's Investors Service ("Moody's") today assigned a Caa1 rating to Dole Food Company, Inc.'s ("Dole") proposed $275 million in junior secured notes. Concurrently, Moody's affirmed all of Dole's other ratings, including its B3 Corporate Family Rating.
Dole, which is in the process of financing a management buyout, has made changes to the proposed capital structure since initially commencing its financing efforts. As part of the changes, Dole is seeking to increase its senior secured term loan from $675 million to $725 million, which Moody's will continue to rate B2. Dole has also chosen to replace its proposed $325 million in senior unsecured notes with $275 million in junior secured notes which will have a subordinate claim to other secured debt in its capital structure. The rating on Dole's previously proposed $325 million senior unsecured notes is withdrawn. The outlook is stable.
The following rating is assigned, subject to Moody's review of final documentation:
$275 million junior secured notes due 2019 at Caa1 (LGD 5, 71%)
The following ratings are affirmed:
Corporate Family Rating at B3;
Probability of Default Rating at B3-PD;
$725 million senior secured term loan due 2020 at B2 (LGD 3, 37%)
Speculative Grade Liquidity Rating at SGL-3
The following rating is withdrawn:
$325 million senior unsecured notes due 2021 at Caa2 (LGD 5, 81%)
The Ba3 (LGD 3, 32%) ratings on Dole's existing $675 million senior secured term loan and $180 million revolver are unchanged and will be withdrawn upon closing of the new bank facilities.
Dole's B3 Corporate Family Rating reflects the very high financial leverage resulting from the debt-financed management buyout, coupled with the earnings and cash flow volatility inherent in the company's commodity oriented business and its vulnerability to uncontrollable factors such as weather, and regulations on key products. The rating also reflects the company's adequate -- albeit not plentiful -- liquidity profile given Moody's expectation of negative free cash flow over the next 12 to 18 months. Moody's expects that the refinancing that Dole is currently undertaking will be insufficient to finance the company's growth plans over the next 12-24 months. These include its contractual obligation over the next 24 months to pay for three new previously-ordered ships. As such, Moody's expects that Dole will need to further access the long term capital markets in the relatively near term in order to finance this expansion. Moody's also expects that leverage will remain high given Dole's significant capital investment plans over the next year and the potential for debt funded acquisitions and shareholder returns. Dole benefits from its scale, with over $4 billion in pro forma fiscal 2012 revenues, leading market positions in a number of categories, and good geographic diversity.
The stable outlook reflects Moody's expectation that the company will maintain adequate liquidity and will benefit from its initiatives to cut costs and increase vertical integration which should improve profitability.
The ratings could be upgraded if the company achieves material and sustained improvement in operating margins, and is able to reduce debt/EBITDA such that it approaches 6 times, incorporating Moody's adjustments. Upward rating momentum would also require it to solidify its capital structure given planned expansion plans, improve its liquidity profile, and generate positive free cash flow for a sustained period.
A downgrade could be considered if operating profits deteriorate or liquidity weakens. A downgrade could also occur if the company engages in large debt funded acquisitions or shareholder returns.
The principal methodology used in this rating was the Global Protein and Agriculture Industry Methodology published in May 2013. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
Dole Food Company, Inc. (Dole) is a leading producer of fresh fruit and fresh vegetables. Revenues for the year ended December 29, 2012, pro forma for the 2013 sale of its global packaged foods and Asia Fresh businesses, were approximately $4.2 billion. In October 2013, Dole's chairman, David Murdock, sought to take Dole private in a transaction valuing the company at around $1.6 billion, which is expected to close following the shareholder vote on October 31, 2013.
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