Moody's cuts Dessert Holdings

Moody's Investors Service said it downgraded the ratings of BCPE North Star US Holdco 2 (Dessert Holdings) including the company's corporate family rating to Caa1 from B3, probability of default rating to Caa1-PD from B3-PD, existing first-lien senior secured revolver and term loan ratings to B3 from B2, and existing second-lien senior secured term loan ratings to Caa3 from Caa2.

“The rating downgrades reflect the company's weaker-than-expected operating performance since the Steven Charles acquisition in December 2021, along with an aggressive acquisition strategy that has resulted in high leverage and weak liquidity. The company's EBITDA margin has declined since the Steven Charles acquisition and debt/EBITDA leverage remains elevated at 9.4x (on a Moody's adjusted basis) for the 12-month period ended Oct. 1 1, 2022. Operating pressure has largely been a result of pricing lagging commodity cost increases and supply chain disruptions that have caused manufacturing inefficiencies,” Moody’s said in a press release.

Additionally, Dessert Holdings acquired Dianne's Fine Desserts for $190 million in October in a relatively leverage-neutral deal that included a $50 million draw from the revolver.

“The drawdown reduced pro forma availability on the revolver to $14 million. Moody's views this transaction as very aggressive from a financial policy standpoint given the use of the revolver and reduction of liquidity, leaving the company vulnerable with weak liquidity in a still uncertain operational environment,” the agency said.

The outlook is negative.

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