Moody's downgrades R&R Ice Cream, rates notes Caa1

Moody's Investors Service said it downgraded R&R Ice Cream Ltd.'s corporate family rating to B2 from B1, downgraded its probability of default rating to B2-PD from B1-PD and assigned a provisional Caa1 rating to the proposed €253 million senior PIK toggle notes due May 2018 to be issued by R&R PIK plc. The outlook is stable.

In accordance with its loss given default framework, Moody's upgraded the rating assigned to R&R Ice Cream plc's €350 million senior secured notes due 2017 to B1 from B2 to reflect the higher loss absorption resulting from the proposed issuance of the subordinated PIK notes.

Proceeds from the new PIK notes will be used to finance the proposed acquisition of R&R Ice Cream by PAI Partners SAS and Fredericks Holdings (Guernsey) Ltd. by R&R Ice Cream.

The agency said the downgrade reflects the expected increase in the company's leverage resulting from its acquisition by PAI. Moody's expects that R&R's adjusted debt-to-EBITDA ratio is likely to increase to around 6 times for at least 18 months.

The B2 corporate family rating is further constrained by R&R's limited size and its narrow product focus, the price-competitive nature of the industry and the potential for margin volatility, Moody's said.

The B2 rating is supported by R&R's strong position within the private label ice cream sector, its wide product offering and ability to innovate, broadly stable market fundamentals in the rather low-cyclical food industry, well-established customer relationships and an improved geographic spread following the recent acquisitions in France and Italy.

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