Moody’s Investor Service this week downgraded the corporate family rating of Bumble Bee Holdings to B3 from B2, as well as its probability of default rating to B3-PD from B2-PD. The canned tuna giant’s outlook was also changed from negative to stable.
The downgrades reflect Moody’s view that leverage has increased to levels that are more appropriate for the B3 rating category, largely driven by EBITDA weakness brought on by relatively high fish costs and the inability to fully pass those costs on 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,” said the credit rating service.
“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,” said Moody’s.
“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 continues 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.”
