NEW YORK — Moody’s Investors Service on March 1 downgraded the rankings and outlook of 8th Avenue Food & Provisions, Inc., a unit of Post Holdings, Inc., citing “a combination of inflation headwinds, supply chain disruptions, capacity expansion delays, and a gradual rotation from elevated at-home food consumption during the pandemic (that) resulted in weak operating performance in fiscal 2021.”
As a part of its actions, Moody’s reduce 8th Avenue’s company household ranking to B3 from B2, chance of default ranking to B3-PD from B2-PD, present first lien senior secured revolver and time period mortgage rankings to B3 from B2, and present second lien senior secured time period mortgage ranking to Caa2 from Caa1. Moody’s “B” rankings are thought-about speculative and are topic to excessive credit score threat, whereas its “Caa” rankings are thought-about to be of poor standing and are topic to very excessive credit score threat.
The ranking outlook for 8th Avenue is destructive, Moody’s mentioned.
Specifically, Moody’s in its downgrade drew consideration to 8th Avenue’s May 2021 acquisition of the Ronzoni dry pasta model and a dry pasta manufacturing facility positioned in Winchester, Va., from Riviana Foods, Inc. in a transaction valued at $95 million. Moody’s mentioned 8th Avenue has turned in “weaker-than-expected operating performance” because the Ronzoni acquisition.
The rankings company additionally expressed concern concerning important capital expenditures associated to the relocation of a fruit and nut plant from Burnaby, BC, to Hazelwood, Mo. The 250,000-square-foot plant will prep and package deal snack nuts, path combine and dried fruit for retail, foodservice and ingredient prospects.
“There is additional execution risk related to the relocation of the fruit and nut plant, which makes up approximately 15% of revenue,” Moody’s mentioned. “The lease for the plant in Canada expires in summer 2022, so the relocation is not optional. The relocation process is already underway and is expected to be fully completed in early summer 2022. Financial flexibility remains limited in the near term due to heavy capex and working capital investments.”
Overall, Moody’s mentioned inflation and provide chain headwinds will proceed to be a drag on margins for not less than the primary half of fiscal 2022.
“Moody’s projects free cash flow will be negative in fiscal 2022 due to weak margins, higher working capital investments, and significant capital expenditures related to the fruit and nut plant relocation from Canada to Missouri,” the rankings company mentioned. “These issues are creating heavy reliance on the revolver until at least the fourth quarter, which is when recent pricing actions should fully be reflected to offset higher costs, absent further inflation.”
Meanwhile, the destructive outlook displays execution threat associated to 8th Avenue’s capability to handle potential additional inflationary strain and provide chain disruptions, together with labor and uncooked materials shortages, freight delays, and manufacturing inefficiencies, Moody’s mentioned.
“The approaching October 2023 revolver expiration will present increasing refinancing risk if the company is unable to overcome the operating challenges to reduce leverage and restore positive free cash flow,” the rankings company mentioned. “Recent contract negotiations with customers to move to more frequent pricing adjustments should allow the company to react to inflation faster if needed.”
Moody’s mentioned it expects free money stream shall be destructive in fiscal 2022 within the $80 million to $90 million vary, primarily due to weak margins, greater working capital investments pushed by greater prices, together with important capex necessities associated to the relocation of the fruit and nut plant.