S&P rates Dean Foods notes B+

Standard & Poor’s said it assigned a B+ rating and recovery rating of 5 to Dean Foods Co.’s proposed $700 million Rule 144A senior unsecured notes issue.

The recovery rating of 5 indicates 10% to 30% expected default recovery.

The proceeds of the bond issue will primarily redeem the company’s outstanding 2016 notes, including any prepayment premiums, S&P said.

While Dean Foods is the leading fluid dairy company in the United States, it faces challenging dairy-processing conditions, excess production capacity in many regions, consumer-shift away from higher-margin branded milk and recently volatile commodity-input costs, the agency said.

Still, Dean Foods generates good levels of free cash flow, which should meaningfully improve in fiscal 2015 as milk costs drop, permitting the company to reduce its debt-to-EBITDA ratio to less than 4x, S&P said.

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