Moody's drop Dean Foods

Moody's Investors Service said it lowered the speculative grade liquidity rating for Dean Foods Co. to SGL-3 from SGL-2. The company's corporate family rating remains Ba3.

The outlook is stable.

The downgrade reflects the company's weak first quarter, which saw a 61% drop in cash from continuing operations and an increase in leverage to 4.43x as compared with 4.16x at the end of the year, Moody's said.

The agency said it believes there may be little or no cushion under the bank leverage covenant under the existing facilities by the end of 2010. Failure to address the tight covenant issue in the near term could lead to further downgrade of the SGL and downward pressure on the company's other ratings, the agency said.

The company is facing pressures on its profit margins in fluid milk due to retailers using private label milk products to drive retail traffic by selling it at little to no profit margin, widening the pricing gap at retail between Dean's branded product and store brand milk, Moody's said.

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