S&P cuts Merisant, rates Tabletop notes B-

Standard & Poor's assigned its B- rating to Chicago-based Tabletop Holdings Inc.'s proposed $75 million senior subordinated discount notes due 2014 and a B+ corporate credit rating to Tabletop, the parent company of sugar substitute maker Merisant Co.

S&P also lowered its senior secured bank loan rating on Merisant's bank credit facilities to B+ from BB- and its subordinated debt rating on Merisant's 9.5% senior subordinated notes due 2013 to B- from B.

The ratings agency said the downgrade reflects Tabletop's increased consolidated debt burden after its proposed debt issue, as well as the company's more aggressive financial policy, specifically the timing of what will be its second distribution to shareholders within a four-month time frame. Merisant's credit protection measures were already weak following a $170 million debt-financed distribution to shareholders in July. The new discount notes will add $75 million of incremental debt that further weakens consolidated credit protection measures.

The ratings on Tabletop reflect the company's narrow product focus, supplier and customer concentration, and its leveraged financial profile. Somewhat mitigating these factors are the company's leading market position and favorable industry growth prospects.

After the transaction, Tabletop will be highly leveraged, S&P said. Lease-adjusted EBITDA (for the 12 months ended June 30), is about 2x the pro forma full-year interest expense. At closing, lease-adjusted total debt to EBITDA will be about 5x.

S&P expects Tabletop to pay down debt under the mandatory excess cash flow sweep provision under the bank credit agreement, thereby improving somewhat its credit protection measures in the near to intermediate term.

Liquidity is expected to be adequate for the ratings. At closing, Tabletop is expected to have full availability under its $35 million revolving credit facility due 2009.

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