Moody's eyes Heritage Grocers negatively

Moody's Investors Service said it changed Heritage Grocers Group, LLC's outlook to negative from stable and affirmed Heritage Grocers' corporate family rating at B2, its probability of default rating at B2-PD and the $435 million senior secured term loan and senior secured revolving credit facility at B2.

Heritage Grocers is seeking a $460 incremental term loan. The loan, $51 million of balance sheet cash and $232 million of equity, which includes $132 million of new equity from Apollo Global Management, Inc., will be used to fund the acquisition of Mexico Foods Parent, LLC (El Rancho) and to pay for fees and expenses. As a part of the transaction, Heritage Grocers will also upsize its revolving credit facility to $125 million from $75 million.

“The change in outlook to negative reflects governance considerations particularly financial strategies which support Heritage Grocers nearly doubling its debt level to finance the acquisition of El Rancho. The negative outlook also reflects the company's high financial leverage and weak interest coverage following the acquisition. Moody's estimates pro-forma debt to EBITDA at 5.7x, and EBITA to interest at about 1.4x,” Moody’s said in a press release.

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