Moody’s assigns Shearer's, loans B3

Moody's Investors Service said it assigned a B3 corporate family rating and a B3-PD probability of default rating to Fiesta Purchaser, Inc. (Shearer's). Concurrently, the agency assigned B3 ratings to the planned senior secured first-lien bank credit facility that is expected to consist of a $300 million revolving credit facility expiring in 2029 and a $1.22 billion term loan due 2031. The outlook assigned is stable.

“The assigned ratings reflect Moody's expectation for the company to also issue $500 million of other pari passu secured debt,” the agency said in a statement.

“The assigned ratings reflect Shearer's high leverage and weak pro forma free cash flow at the close of the LBO transaction. Moody's estimates that at the close of the LBO, Shearer's pro forma debt/EBITDA leverage will be 6.1x (on a Moody's adjusted basis) as of Dec. 30, 2023. Moody's expects debt/EBITDA leverage to decline to nearly 5.5x by the end of the fiscal year ended September 2024 and to a low 5x range by the end of fiscal 2025, driven by earnings growth,” the agency said in a press release.

Proceeds from the planned $1.72 billion of secured debt along with a new common equity contribution from private equity firm Clayton Dubilier & Rice, LLC will fund the leveraged buyout of Shearer's, including repayment of Shearer's Foods, LLC's debt, along with transaction-related fees and expenses. The $300 million cash flow revolver is expected to have $5 million drawn at close to bridge the timing of pending asset sale proceeds that are expected to be received after the close of the acquisition.

The $300 million commitment is higher than Shearer's Foods' unrated $125 million ABL revolver. Moody's said it will withdraw all of Shearer's Foods’ ratings, relating to the capital structure under Ontario Teachers' Pension Plan Board's ownership, including the B2 CFR once the deal closes and the debt is repaid.

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