Moody's cuts Shearer's

Moody's Investors Service said it downgraded Shearer's Foods, Inc.'s corporate family rating and probability of default ratings to B2 from B1 and its term loan B facilities to B1 (LGD 3, 39%) from Ba3 (LGD3, 40%).

The ratings remain on review for possible further downgrade.

The rating action is driven by Shearer's weak short-term liquidity and lower than expected profitability as the company executes its expansion plans in the midst of a difficult commodity cost environment, the agency said.

The rating action also reflects Moody's concern that in absence of an amendment to its credit facilities, which would provide covenant relief, Shearer's is unlikely to maintain compliance with its financial maintenance covenants in the quarter ending June, the agency added.

The ratings consider the company's solid position in private label, co-pack and branded snack foods following the acquisition of Snack Alliance last year, a transaction which provided greater geographic, product and customer diversity to Shearer's, Moody's said.

However the ratings also reflect the company's relatively small scale, 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, the agency added.

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