Moody's changes CSM Bakery outlook to negative

Moody's Investors Services said it changed the outlook for CSM Bakery Solutions Ltd. (formerly CSM Bakery Supplies Ltd.) to negative from stable and affirmed its corporate family rating at B2 and probability of default rating at B2-PD. The agency also affirmed the senior secured first-lien term loan of CSM Bakery Solutions LLC (formerly CSM Bakery Supplies LLC) at B1 (LGD3) and its senior secured second-lien term loan at B3 (LGD5).

CSM Bakery Solutions LLC plans to increase the size of its $693 million first-lien term loan to $850 million and its $150 million second-lien term loan to $306 million to fund a portion of a €300 million (roughly $425 million) dividend to the equity sponsor. The remaining portion of the dividend will be funded through cash on hand and a small short-term draw from its asset-based revolving credit facility.

The agency said the negative outlook reflects the lack of a proven operating track record under the new management team and an apparent shift to a more aggressive financial policy than Moody's anticipated when the equity sponsors (Rhone Capital and affiliates) purchased the company about a year ago.

The affirmation reflects Moody's expectation that while the proposed recapitalization will result in high leverage – the ratio of pro forma debt to EBITDA will rise to about 6.8 times from about 5.3 times – leverage should decline comfortably below 6 times within a year, barring any unforeseen operational challenges.

The agency said the B2 corporate family rating reflects CSM’s high financial leverage, thin profit margins, limited operating history as a standalone company and aggressive financial policy.

These negative factors are balanced against Moody's expectation of relatively stable operating performance, positive free cash flow generation and some scope for modest earnings improvements driven by cost savings initiatives and favorable sales mix.

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