Moody's lifts Krispy Kreme to SGL-3

Moody's Investors Service said it raised Kripsy Kreme Doughnut Corp.'s speculative-grade liquidity rating to SGL-3 from SGL-4, revised its probability-of-default rating to Caa2 from Caa3 and affirmed its corporate family rating at Caa1 and senior secured credit facilities at B3 (LGD2, 28%).

The outlook remains negative.

The agency said the SGL-3 rating reflects the company's modestly improved liquidity following an amendment to its credit facilities that relaxed the interest coverage covenant, among other revisions. In connection with this, the company had to prepay $20 million of term debt and reduce its $30 million revolving credit facility to $25 million.

Krispy Kreme's weakening free cash flow generation projected over the next four quarters and reduced availability under the revolver temper the rating, Moody's said.

The company's Caa1 corporate family rating and negative outlook reflect its weak credit metrics, lack of product diversification and top-line pressure driven by declining customer traffic and product demand, the agency said.

Favorably, the affirmation of the Caa1 rating reflects the company's strong brand recognition, geographic diversification and its success in resolving some legacy litigation and material weaknesses issues, Moody's said.

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