Moody's cuts Gold Kist to SGL-2, changes outlook to stable

Moody's Investors Service said it changed the outlook for Gold Kist Inc. to stable from positive, downgraded the company's speculative liquidity rating to SGL-2 from SGL-1 and affirmed its B2 senior unsecured note rating and B1 corporate family rating.

The change in outlook reflects Moody's view that Gold Kist's ratings are unlikely to be upgraded over the near term due to rapid and significant deterioration in the company's financial performance, very difficult conditions in the U.S. poultry industry in general and the heightened event risk of an avian influenza outbreak in the U.S., as conditions in the poultry industry have taken a dramatic negative turn in the past three to four months from its cyclical peak in 2004-2005.

The downgrade of Gold Kist's speculative liquidity rating reflects Moody's expectation that materially weaker financial performance could result in tightened financial covenants in the next 12 months. In December, the company amended and restated its committed senior secured bank credit facility to increase the commitment to $250 million and to amend financial covenants. The main financial covenants are a minimum last-12-month fixed charge ratio of 1.25x and a maximum total debt to last-12-month EBITDA ratio of 3.25x. Moody's predicted that the cushion with respect to each of these covenants will tighten over the next year as a result of sharply weaker financial performance.

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