Moody's cuts Moran, rates new loans

Moody’s Investors Service said it lowered its ratings for Moran Foods LLC, including its probability of default rating to Caa1-PD/LD from B3-PD and appended a limited default designation to the PDR. The \LD designation follows the change in terms under the company's recently amended and extended second-lien term loan that reinstates the option for interest payments to be paid-in-kind.

Moran's prior PIK option expired in April. The /LD designation reflects the agency’s view that the reinstatement of the option to make PIK interest payments is a distressed exchange and a limited default under Moody's definition. Moody's will remove the designation from the company's PDR in three business days.

Moody's also assigned a Caa1 rating to Moran's new amended and extended senior secured first-lien term loans, a B3 rating to the company's senior secured delayed-draw term loan, a Caa3 rating to its senior secured second-lien term loan maturing in 2026, and a Caa3 rating to its senior secured second-lien term loan maturing 2024.

The proceeds from the amended and extended credit facilities and balance sheet cash were used to repay borrowings under the company's asset-backed credit facility, refinance its term loans and to pay fees and expenses. Moody's downgraded the previous senior secured second-lien term loans rating due 2024 and 2025 to Caa3 from Caa1, senior secured first-lien term loan to Caa1 from B3 and the senior secured delayed-draw term loan, super senior due 2023 to B3 from B1, and these ratings will be withdrawn. Moody's changed the outlook to negative from stable.

The new facilities include an increase to the company's ABL to $180 million from $150 million, a reduction to its unrated first-in last-out credit facility to $20 million from $50 million, an increase to the first-lien term loans to $250.21 million from $138.9 million and a reduction to the second-lien term loan to $148.76 million from $180.03 million.

“The new facilities extended Moran's maturity profile, including its ABL to 2027 from 2023 and the term loans to 2026 from 2024 except for $22 million of non-extended second-lien term loan which is due in October 2024. At the close there was $53 million drawn and $23 million of letters of credit issued under the ABL, leaving roughly $83 million available which is weak when considering the $22 million debt maturity in October 2024 and Moran's modest free cash flow,” the agency said in a press release.

The downgrades reflect the forecast that Moran's weak liquidity and high financial leverage will not meaningfully improve over the next 12 months, Moody’s said. The negative outlook reflects the view that Moran's credit metrics and liquidity will remain weak.

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