Moody's rates Dean Foods loan Ba3, may downgrade ratings

Moody's Investors Service said it assigned a provisional Ba3 rating to Dean Foods Corp.'s proposed $4.8 billion bank facility, affirmed the speculative grade liquidity rating at SGL-2 and placed the company's Ba1 corporate family and probability-of-default ratings, Baa3 (LGD3, 37%) secured bank facilities and Ba2 (LGD5, 85%) senior unsecured facilities on review for possible downgrade.

The rating actions follow the company's announcement of its plans to return $2 billion to shareholders through a one-time special dividend. The agency said the review will focus on the impact of the dividend transaction on leverage and other financial metrics of the company and the prospective for recovery of financial metrics over the medium term.

Because the special dividend will significantly increase the debt-to-EBITDA ratio to nearly 6x in the short-term and represents a shift to a more aggressive financial policy, Moody's said the likely outcome of the review is for a two-notch downgrade of the corporate family and probability-of-default ratings to Ba3 and of the senior unsecured ratings to B1.

The agency said Dean's significant leverage will be partially offset, however, by a number of stronger qualitative factors, including its national market dominance and scale in the U.S. dairy industry, relatively stable historical earnings and cash flow, diverse customer base supported by a large direct store delivery system and good liquidity.

The affirmation of the SGL-2 reflects the company's good liquidity profile resulting from its relatively predictable cash flows and large committed credit facilities, as well as the fact that the funding of the special dividend is contingent upon the closing of the proposed new $4.8 billion bank facility, Moody's said.

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