Moody’s downgrades KeHE, rates notes B3

Moody's Investors Service said it downgraded KeHE Distributors, LLC's corporate family rating to B1 from Ba3 and its probability of default rating to B1-PD from Ba3-PD. The agency also assigned a B3 rating to the company's planned $750 million of senior secured global notes due 2031. Moody’s changed the outlook to negative from stable.

The downgrade “reflects governance considerations reflecting the weaker credit protection measures following the recapitalization of KeHE's balance sheet, which will lead to a 54% increase in funded debt,” the agency said in a press release. The outlook reflects the higher leverage and the risk that KeHE won’t be able to improve its credit metrics over the next 12 to 18 months.

The company will use the proceeds to pay down $153 million of the company's asset-based revolving credit facility, fully repay the $154 million outstanding on its second-lien notes, repurchase the $199 million in preferred equity held by private equity firm TowerBrook Capital Partners, buy back about 59% of TowerBrook's common equity and for transaction fees and expenses.

The B2 rating on the company's second-lien secured notes due 2026 will be withdrawn upon the closing of the transaction and its repayment in full.

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