Moody's may cut Shearer's

Moody's Investors Service said it placed the B1 corporate family and probability of default ratings of Shearer's Foods, Inc. as well as its Ba3 (LGD 3, 40%) senior secured revolver and senior secured tem loan B on review for possible downgrade.

The review is based on Moody's concerns that operating performance will not meet expectations and covenant cushions may be tighter than expected in the upcoming quarters as the company executes its expansion plans in the midst of a difficult commodity cost environment, the agency said.

Moody's said that the review will focus on the company's ability to grow cash flows and improve leverage metrics over the next few quarters as well as how it will manage its liquidity situation given potential covenant pressure.

The ratings on the company reflect its solid position in private label, co-pack and branded snack foods following the acquisition of Snack Alliance last year, which provided greater geographic, product and customer diversity to Shearer's as well as enabling costs synergies, the agency added.

The rating also reflects the company's relatively small scale and narrow focus on the salty snack sector and its increasing leverage as a result of expansion plans that have yet to generate improved cash flows.

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