Moody’s drops Shearer's Foods, loans, notes

Moody's Investors Service said it downgraded Shearer's Foods, LLC's corporate family rating to B3 from B2 and probability of default rating to B3-PD from B2-PD.

The agency also downgraded the first-lien term loan, incremental first-lien term loan and first-lien senior secured notes to B3 from B1 and the second-lien term loan to Caa2 from Caa1.

The outlook is stable.

Moody’s said the downgrade of the corporate family rating to B3 reflects Shearer's consistently weak to negative free cash flow and the agency expectation that earnings will be lower than it previously thought resulting in debt/EBITDA remaining above 6.5 times through fiscal year end 2018.

The agency lowered its earnings expectations due to a greater degree of competition that is negatively impacting revenue.

In addition, Moody’s said, costs will be higher than originally anticipated because a couple of plants are not performing up to original expectations and SG&A expenses are higher due to additional support resources needed for the addition of the Barrel O' Fun business.

The downgrade of the secured notes and loans reflect an assumption that modest borrowings will remain outstanding under the company's asset-based revolving credit facility, which has a priority lien on accounts receivables and inventory.

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