Del Monte Foods, Inc.

The negative rating outlook on Del Monte reflects that its operations remain vulnerable. The company continues to face declining demand for its products as consumers choose fresh produce over canned goods. Furthermore, any reduction in Del Monte's leverage will depend highly on the successful execution of its long-term strategy to revamp its product portfolio with more on-trend items. The company's capital structure remains highly leveraged, and we view it as unsustainable over the long term. We could lower our ratings on Del Monte over the next few months if we envisioned a default scenario within the next year, including if it were unable to execute its new initiatives and make progress toward increasing its revenue and EBITDA, resulting in the

...Upcoming maturities heighten default risk. In a few months, Del Monte Foods Inc.'s (DMFI) debt will become current, and the company will need to address its upcoming maturities. We could lower the rating if we determined that the company might not timely refinance its $442.5 million asset-based loan (ABL) revolving credit facility due in November 2020 and $710 million first-lien term loan due in February 2021. With a total debt leverage ratio of over 12x, the company's capital structure is unsustainable and could impair its ability to refinance with favorable terms. If refinancing terms are unfavorable, Del Monte Pacific Ltd.( DMPL), the parent company, could buy back the first-lien debt for less than par, resulting in a selective default. We believe the company might consider repurchasing its first-lien debt balances at distressed levels given that this debt is currently trading in the 75- to 80-cent-on-the-dollar range. In addition, extending its ABL maturity by a year is not a viable...

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