Fitch downgrades Kraft Heinz

Fitch Ratings said it downgraded the long-term issuer default rating for The Kraft Heinz Co., Kraft Heinz Foods Co. and Kraft Canada, Inc. to BB+ from BBB. The outlook is stable.

“The downgrade reflects Fitch's view that Kraft's leverage will remain elevated above 4x for a prolonged period due to ongoing EBITDA challenges and limited near term debt reduction potential. Following Kraft's commentary around 2020 operating headwinds which would suggest a nearly 8% EBITDA decline and its commitment to maintain its dividend as announced Feb. 13, 2020, Fitch estimates the company may need to divest up to 20% of its projected 2020 EBITDA to support debt reduction necessary to reduce leverage to below 4x versus 2019 leverage of 4.8x,” said Fitch in a press release.

Fitch said it adjusted Kraft's downgrade leverage sensitivity to 4x from 4.25x, which puts Kraft in line with most of its packaged food peers. Kraft's leverage sensitivity was modestly higher due to the company's above-average EBITDA generation at nearly $8 billion in 2017 with margins in the 30% range. However, margins have subsequently fallen to the 23%-24% range.

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