Moody's gives Dessert B3, loans B2, Caa2

Moody's Investors Service said it gave first-time ratings to BCPE North Star US Holdco 2 (Dessert Holdings), including a B3 corporate family rating, a B3-PD probability of default rating, B2 ratings on a planned $75 million first-lien revolver due 2026, a $380 million first-lien term loan due 2028, and a $75 million first-lien delayed draw term loan due 2028. Moody's also assigned a Caa2 rating to a $135 million second-lien term loan due 2029.

Bain Capital agreed to acquire the company in April and the proceeds will be used to fund the acquisition.

"Dessert Holdings' B3 corporate family rating reflects the company's solid EBITDA margins, leading position in the narrowly defined bakery categories, strong customer base with longstanding relationships, and good liquidity profile," stated Frank Henson, a Moody's senior analyst, in a press release.

"Credit concerns include Dessert Holdings small size in terms of revenue, less than $500 million for the latest 12-month period ended March 31, 2021, and high financial risk. Pro forma debt-to-EBITDA leverage as of March 31, 2021 is mid-7x and Moody's projects that debt to EBITDA will decline to the mid-6x range over the next 12 to 18 months," added Henson.

The B2 first-lien ratings are a notch above Dessert’s B3 corporate family rating, acknowledging the loss absorption provided by the $135 million second-lien debt. Conversely, the second-lien debt’s Caa2 rating, two notches lower than the corporate family rating, considers the large amount of debt ahead of it in the capital structure, Moody’s said.

The outlook is stable. The outlook reflects an expectation that Dessert will continue growing its revenues and EBITDA in a low- to mid-single-digit percentage range through continued new customer growth and retention and generate annual positive free cash flow of at least $10 million, the agency said.

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