S&P ups Moran, loans, rates loans CCC-

S&P said it upgraded its issuer rating for Moran Foods LLC (Save-A-Lot) to CCC+ from SD, selective default following the completion of refinancing its capital structure.

At the same time, the agency assigned its CCC- issue-level rating to its first-lien, first-out payment-in-kind (PIK) and first-lien, second-out PIK term loans. It also raised the rating on Moran Foods' first-lien, first-out and first-lien, second-out term loans due in 2026 to CCC- from D, and on its second-lien term loans due in 2024 and 2026 to CCC- from D.

“Weak demand, working capital outflow and elevated cash interest expenses have challenged Save-A-Lot's ability to generate consistent free operating cash flow (FOCF). Following its refinance, the company now has the option to pay a minimum of 2% in cash interest until the maturity of its term loans, which will alleviate liquidity pressures. However, we expect leverage to remain very high in the short term because of challenging operating conditions and the accumulating nature of the PIK features,” S&P said in a statement.

The agency added, “While we expect Save-A-Lot will generate positive FOCF, we believe it will likely be insufficient to sustain its debt burden. Reported FOCF deficit was $65 million in 2023 due to lower operating margins and higher accounts payable turnover. We forecast the company could save about $50 million in cash interest in 2024 as it utilizes its PIK interest payment option. In addition, Save-A-Lot plans to monetize assets to further enhance short-term liquidity and implement its turnaround initiatives.”

The outlook is negative.

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