Moody's assigns Neogen Ba3, loans Ba2

Moody's Investors Service said it assigned ratings to Garden SpinCo Corp. (Neogen Corp.), including a Ba3 corporate family rating, a Ba3-PD probability of default rating and Ba2 ratings to the planned first-lien senior secured credit facilities. The outlook is stable.

Neogen's plans to combine with 3M Co.'s food safety division. The company seeks to raise new credit facilities consisting of a $150 million senior secured first-lien revolver, undrawn at close, and a $650 million senior secured first-lien term loan. The ratings also consider an expected $350 million senior unsecured debt issuance.

“Neogen's Ba3 corporate family rating broadly reflects its top market position in food and animal safety products globally. The company benefits from a high proportion of consumable sales (approximately 95% of revenue pro forma for the combination with 3M Food Safety) that are recurring in nature and carry attractive margins,” Moody’s said in a press release.

However, a lack of long-term contracts with most customers with Neogen delivering goods on a per-order basis limits the rating, the agency noted.

The proceeds will be used to make a cash dividend to 3M. Additionally, the combination will be financed with new Neogen equity issued to 3M shareholders, whereby Neogen shareholders will own 49.9% of the combined company, and 3M shareholders will own 50.1%. The transaction is expected to close in the third quarter of calendar-year 2022, subject to Neogen shareholder approval and other required regulatory approvals.

Moody's said it forecasts leverage will improve versus earnings growth, and that adjusted debt/EBITDA will trend toward the mid-3x range (on Moody's adjusted basis) over the next 12-18 months.

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