S&P prunes Del Monte Foods

S&P said it downgraded its ratings for Del Monte Foods Inc. and its $725 million first-lien term loan to B- from B. The recovery rating remains 4, reflecting average (30%-50%; rounded estimate: 35%) recovery in default.

S&P noted Del Monte Foods reported significantly weaker operating results for the second quarter ended Oct. 29, compared with its budget and the agency’s forecast, which boosted its trailing-12-month S&P Global Ratings-adjusted leverage to 11x from 6x in the same prior-year period.

“We estimate high inventory levels will keep asset-backed (ABL) facility borrowings higher than previously expected. Combined with weak consumer demand, this will continue hurting Del Monte's profitability and cash flow for the remainder of fiscal 2024 into fiscal 2025. These factors will sustain leverage above 7x, which is higher than our previous expectations,” S&P said in a press release.

On the positive side, the agency said it forecasts Del Monte's profitability and cash flow generation to improve in fiscal 2025.

The outlook is negative.

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