Moody's cuts Ocean Spray

Moody's Investors Service downgraded Ocean Spray's short term rating to not Prime from Prime-3 and its preferred stock rating to Ba3 from Ba2. The outlook is stable.

Moody's said the downgrade reflects continuing uncertainty surrounding the cooperative's future strategic direction; the challenges that Ocean Spray faces in seeking to maintain volumes, margins, and profitability in the fiercely competitive categories in which it competes; and the deterioration in the company's core operating performance.

Ocean Spray experienced serious senior management disruptions over the past year. In November 2002, Ocean Spray's CEO resigned less than three years after the resignation of its prior CEO. In March 2003, Ocean Spray's members - unhappy with the cooperative's as well as senior management's performance - voted to replace its entire board of directors.

Going forward, Ocean Spray's new board and senior management team must more effectively deal with its highly political member-owners, Moody's said. This includes a vocal group of members that would like to monetize their investment in Ocean Spray - possibly by supporting a sale of the cooperative.

Even if Ocean Spray remains independent, Moody's believes that management will remain under pressure to take steps to increase returns to its members, as well as to deal with owner-members who seek to exit the cooperative. This could involve increasing payments to or repurchasing equity investments from members, or seeking an alliance with another food industry partner.

In any event, this heightened level of uncertainty surrounding Ocean Spray's future strategic direction and financial policy remains, and is a key reason for downgrading its ratings.

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