S&P may up Burns Philp

Standard & Poor's said it placed its B+ long-term corporate credit rating on Burns Philp & Co. Ltd. on CreditWatch with positive implications following Burns Philp's announcement that it has entered into a conditional agreement to sell its yeast and bakery ingredients group and its Tones Bros. herbs and spices businesses to Associated British Foods plc (not rated) for about A$1.9 billion.

"Should the sale be executed as proposed, Burns Philp's financial profile will strengthen. Under current financing arrangements, A$475 million, or 25%, of the proceeds will be used to reduce the company's currently high debt burden," said S&P credit analyst Lucie Kistler.

After the sale, net debt to EBITDA is expected to fall to between 2x and 2.5x (from 4.6x at Dec. 31, 2003), with funds from operations to total debt rising to about 20% from below 10% in fiscal 2004.

"Combined with the boost to liquidity provided by the remaining A$1.425 billion sale proceeds to be retained in cash reserves, the better debt metrics contribute to a less aggressive balance-sheet structure," Kistler said.

Nevertheless, S&P said it expects that the cash retained will be used for further acquisitions, which are likely to be significant.

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