S&P: AdvancePierre notes B-

S&P said that it affirmed the B+ corporate credit rating of AdvancePierre Foods Holdings, Inc. and assigned a B- rating to its new $350 million senior unsecured notes due in 2024 with a 6 recovery rating, indicating 0 to 10% expected default recovery.

The agency also said it affirmed the B+ rating on the first-lien term loan and revised the recovery rating to 3 from 4, indicating about a 59% expected default recovery.

The outlook remains stable, reflecting an expectation that the company’s leverage will decline to less than 4.5x over the next year from improving operating margins, S&P said.

The company will continue to de-leverage after its initial public offering and maintain a debt-to-EBITDA ratio of less than 5x, the agency said.

S&P also said it believes there will be continued EBITDA margin improvement and fairly low capital expenditure requirements of about $40 million annually.

The company also is expected to generate annual free cash flow of more than $100 million, which should allow the company to fund dividends of about $45 million annually while reducing leverage to less than 4.5x over the next year, the agency said.

AdvancePierre is narrowly concentrated in the value-added protein segment of the highly competitive packaged food industry, especially within the cyclical food-service distributor channel, which is subject to consumer discretionary spending, S&P explained.

Better pricing discipline, improved operating efficiencies and product mix have helped the company improve its profitability and cash flows by reducing its exposure to volatile commodity costs, primarily those of beef, the agency added.

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