Moody's assigns B1 rating to Post Holdings' US$450M worth of 10-year senior unsecured 144A notes; outlook stable
November 13, 2013
– Moody's Investors Service, Inc. ("Moody's") assigned a B1 rating to $450 million of 10-year senior unsecured 144A notes being offered today by Post Holding, Inc. ("Post"). All existing ratings, including the company's B1 Corporate Family Rating, the B1-PD Probability of Default Rating, the SGL-3 Speculative Grade Liquidity Rating and the B1 rating on existing senior unsecured debt rating remain unchanged. The rating outlook is stable.
Post is offering $450 million of 10-year senior unsecured notes, the proceeds from which will be used in part to fund the $370 million acquisition of Dakota Growers Pasta Company that was announced on September 16, 2013. The remaining proceeds, along with over $400 million of pre-offering cash balances will be used for general purposes including to fund future acquisitions.
The company recently has accelerated its pace of acquisitions as part of a growth strategy aimed at adding shelf stable food categories to its portfolio that add attractive benefits such has scalability or compliments existing businesses. The Dakota Growers Pasta acquisition is the third expected to be completed this year following the purchase of the cereal, granola and snacks business of Hearthside Food Solutions in May 2013 for $158 million and Premier Nutrition, a maker of protein beverages and foods in September for $180 million.
"Today's offering effectively reloads Post's balance sheet to make more acquisitions, which is anticipated in the B1 rating," commented Brian Weddington, a Moody's analyst.
Recent acquisitions have increased Post's financial leverage, but also have diversified Post's product portfolio away from the slowly eroding North America ready-to-eat cereal business, which today represents over 60% of its sales.
Post's B1 CFR reflects declining core ready-to-eat cereal category growth trends, the company's weak competitive position against the leading branded cereal makers and the company's aggressive acquisition strategy that has caused financial leverage to rise. Post's credit profile is supported by the strong albeit weakened operating margin, cash flow, and brand equities of its core RTE cereal brands, and reflects the attractive growth prospects of recent acquisitions within the faster growing natural and organic segments.
The SGL-3 rating reflects ample internal sources of liquidity -- including over $500 million of cash balances upon the consummation of the pending acquisition and free cash flow of at least $100 million over the next 12 months by Moody's estimates -- balanced against no committed sources of external liquidity.
Post Holdings, Inc.:
Proposed $450 million senior unsecured 144A notes due 2023 at B1, LGD-4, 51%.
Corporate Family Rating at B1;
Probability of Default Rating at B1-PD;
Speculative Grade Liquidity Rating at SGL-3;
$1,375 million 7.375% senior unsecured notes due 2022 at B1, LGD-4, 51%.
The outlook remains stable.
Dakota Growers Pasta Company is a North American pasta maker that sells through private label retail, foodservice and ingredient channels. The business will be independently operated subsidiary of Post, managed by its existing senior leadership. Dakota Growers is expected to contribute approximately $300 million to net sales and approximately $42-$46 million of EBITDA, which Moody's estimates will result in proforma closing leverage of about 6.5 times debt/EBITDA.
"Leverage at closing will be at the upper end of the B1 rating tolerance, but we expect that cash flows added through operations and future acquisitions will reduce leverage over the next year," added Weddington
A CFR downgrade could result if debt/EBITDA is sustained above 6.5 times or if the company fails to generate free cash flow. A security rating downgrade could occur if future debt issuances cause the existing senior unsecured notes to become significantly subordinated. A rating upgrade is unlikely before the company's core RTE cereal business has stabilized; however, the ratings could eventually be upgraded if Post is able to sustain debt/EBITDA below 5.0 times.
The principal methodology used in this rating was the Global Packaged Goods published in June 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.
Post Holdings, based in St. Louis Missouri, is a leading manufacturer of branded ready-to-eat cereals that are sold in the United States and Canada. Post is the third largest seller of RTE cereals in the U.S. behind Kellogg and General Mills with an approximate 10% market share by Moody's estimate. The company's key brands include Honey Bunches of Oats, Pebbles, Great Grains, Grape-Nuts, Shredded Wheat, Raisin Bran, Peace, Golden Temple, Erewhon and Premier Protein. Proforma annual sales, including announced acquisitions are about $1.5 billion.