S&P downgrades Del Monte Foods

Standard & Poor’s said it lowered the corporate credit rating on Del Monte Foods Inc. to B- from B.

The outlook is negative.

The agency also said it lowered the rating on the company’s first-lien term loan to B- and the rating on the company’s second-lien term loan to CCC.

The recovery ratings on the term loans are unchanged. The 3 recovery rating on the first-lien term loan indicates 50% to 70% expected default recovery. The 6 recovery rating on the second-lien term loan indicates 0 to 10% expected default recovery.

The agency said that the company’s ABL borrowings exceeded expectations during the peak borrowing season, leading to availability falling to less than the 1x, springing the fixed-charge coverage covenant threshold of $30 million.

S&P said it previously expected the $42.55 million upsize to the ABL loans in August would provide sufficient covenant cushion and that the covenant would not be triggered during fiscal 2016.

However, the company needed to rebuild its inventory levels, which accounted for higher cash outflows and lower cash flow from operations than previously anticipated, the agency said.

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