Moody's snips Monogram Food

Moody's Investors Service said it downgraded Monogram Food Solutions, LLC's corporate family rating to B3 from B2, its probability of default rating to B3-PD from B2-PD and the senior secured first-lien revolving credit facility and senior secured first-lien term loan ratings to B3 from B2.

“The downgrade reflects Moody's expectation that Monogram's debt to EBITDA (on a Moody's adjusted basis) will remain above 7x in the next 12 to 18 months despite projected improvement in earnings related to capacity expansion and improved supply chain execution. The downgrade also reflects Moody's expectation that Monogram's free cash flow will remain meaningfully negative in the next 12 to 18 months as management invests in building out its manufacturing capacity, earnings remain below levels expected at the time of the 2021 leverage buyout, and the company absorbs higher cash interest costs.

“Considering the company's negative free cash flow, management has financed its manufacturing capacity growth through equipment financing and a sale-leaseback transaction in December 2022. These factors combined with weak fiscal 2022 EBITDA caused Moody's adjusted debt to EBITDA to increase to 8.8x on a last 12-month basis as of April 1, 2023. Moody's anticipates that the company will deplete cash and begin to utilize the revolver to fund the cash flow deficits,” the agency said in a press release.

Moody’s said it does expect Monogram’s revenues and EBITDA to increase over the next 12 to 18 months and for debt to EBITDA to decrease but still stay above 7x for the period.

The outlook is stable.

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