S&P ups Hostess, facilities; rates loan BB-

S&P said it upgraded its ratings on Hostess Holdco LLC, including the corporate credit rating to B+ from B.

The agency also assigned a B+ corporate credit rating to the newly created public entity and parent company, Hostess Brands Inc.

The outlook is stable.

At the same time, S&P assigned a BB- issue-level rating to Hostess Brands’ proposed $83 million senior secured incremental first-lien term loan maturing in 2022 and a 2 recovery rating, indicating an expectation for substantial recovery (lower half of the 70%-90% range) in the event of a payment default.

The agency upgraded its existing $100 million revolving credit facility and $925 million first-lien term loan issue-level ratings to BB– and maintained the 2 recovery rating in the lower half of the 70%-90% range.

S&P will withdraw its ratings on the second-lien term loan, including the CCC+ issue-level rating and 6 recovery rating upon close of this transaction.

Hostess Holdco is being acquired by a special purpose acquisition company (SPAC) owned by Gores Holdings Inc., an arm of the private-equity firm The Gores Group. As part of the transaction, the company is reducing debt leverage to 5.5 times from 6.5 times.

S&P said the SPAC transaction will result in $670 million in new equity, of which $217 million will be used to reduce the existing $300 million second-lien term loan. The remaining $83 million of the second-lien will be refinanced into an incremental first-lien term loan.

The agency estimates that the company will have $1 billion of adjusted debt at close.

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