Research Update: Del Monte Foods Inc. Downgraded To 'B-' On Weak Operating Performance; Outlook Revised To Negative

U.S.-based Del Monte Foods Inc. reported substantially weaker operating results for the second quarter ended Oct. 29, 2023, compared with its budget and our forecast, which increased its trailing-12-month S&P Global Ratings-adjusted leverage to 11x from 6.0x in the same prior-year period. We estimate high inventory levels will keep asset-backed (ABL) facility borrowings higher than previously expected. Combined with weak consumer demand, this will continue hurting Del Monte's profitability and cash flow for the remainder of fiscal 2024 into fiscal 2025. These factors will sustain leverage above 7x, which is higher than our previous expectations. Therefore, we lowered our issuer credit rating on Del Monte to 'B-' from 'B' and our issue-level rating on its $725 million first-lien term loan

...- U.S.-based Del Monte Foods Inc. reported substantially weaker operating results for the second quarter ended Oct. 29, 2023, compared with its budget and our forecast, which increased its trailing-12-month S&P Global Ratings-adjusted leverage to 11x from 6.0x in the same prior-year period. - We estimate high inventory levels will keep asset-backed (ABL) facility borrowings higher than previously expected. Combined with weak consumer demand, this will continue hurting Del Monte's profitability and cash flow for the remainder of fiscal 2024 into fiscal 2025. These factors will sustain leverage above 7x, which is higher than our previous expectations. - Therefore, we lowered our issuer credit rating on Del Monte to 'B-' from 'B' and our issue-level rating on its $725 million first-lien term loan to 'B-' from 'B'. The recovery rating remains '4', reflecting our expectation for average (30%-50%; rounded estimate: 35%) recovery in the event of default. - The negative outlook reflects the potential...

Research Update