Moody´s: rates CSM Bakery Supplies B2

New York. (mis) Moody´s Investors Service has assigned a B2 Corporate Family Rating (CFR) and a B2-PD Probability of Default Rating (PDR) to the acquiring company of the global bakery supplies business of Netherlands-based CSM N.V. (CSM Bakery Supplies). Moody´s also assigned a B1 rating to the proposed 650 million USD first-lien term loan and a B3 rating to the proposed 200 million USD second-lien term loan being raised to fund the leveraged buyout of the business. A separate proposed asset-based revolving credit facility will not be rated by Moody´s. The ratings outlook is stable.

The assigned ratings are subject to closing of the pending acquisition of CSM Bakery Supplies by entities affiliated with Rh?´ne Capital under the terms and capital structure currently contemplated. In March 2013, affiliates of Rh?´ne Capital agreed to purchase CSM Bakery Supplies from Netherlands-based CSM NV for an enterprise value of 1’050 million EUR. The transaction contemplates the formation of a new UK-based holding company that will be a guarantor of one billion USD of proposed senior secured debt instruments (approximately 870 million USD drawn at closing) that will be issued through Mill US Acquisition LLC, a newly-formed US-based subsidiary.

Ratings Rationale

The B2 Corporate Family Rating reflects relatively high closing debt / Ebitda that Moody´s estimates at 5,5 times (after Moody´s accounting adjustments) and weak operating profit margin that has fallen to low single-digits in recent years due to a difficult operating environment in North America and in Europe, including high input inflation and soft consumer spending. Moody´s expects operating performance to improve under the control of Rh?´ne Capital, which has successfully managed complex cross-border acquisitions in the past. However, execution risks related to planned operating strategy shifts in North America and Western Europe and high exposure to commodity input prices could result in earnings volatility over the next 18 months.

Ratings assigned:

  • CSM Bakery Supplies:
    • Corporate Family Rating at B2;
    • Probability of Default Rating at B2-PD.
  • Mill US Acquisition LLC:
    • 650 million USD of proposed senior secured first-lien debt at B1 (LGD3, 33 percent);
    • 200 million USD of proposed senior secured second-lien debt at B3 (LGD4, 68 percent).

The ratings outlook is stable.

The senior secured first-lien debt is rated one-notch above the Corporate Family Rating reflecting its senior position in the capital structure to at least 200 million USD of other secured debt instruments. The senior secured second-lien debt is rated one notch below the Corporate Family Rating reflecting its junior position in the capital structure to 650 million USD of first-lien debt and a proposed 150 million USD asset-backed revolver (not rated).

A ratings upgrade could occur if CSM Bakery Supplies is able to reduce and sustain debt / Ebitda below 4,75 times and significantly improve Ebita margins. Conversely, ratings could be lowered if debt / Ebitda rises above 6,0 times.

CSM Bakery Supplies produces and distributes bakery products and ingredients for artisan and industrial bakeries and for in-store and out-of-home markets, mainly in Europe and North America. The company supplies customers with finished or semi-finished products and bakery ingredients. In 2012, CSM Bakery Supplies generated net sales of approximately 3,4 billion USD.

CSM NV, headquartered in Amsterdam (Diemen), Netherlands, is the largest supplier of bakery products worldwide and is a global market leader in lactic acid and lactic acid derivatives. CSM NV currently generates annual sales of 3,3 billion EUR.

The principal methodology used in this rating was the Global Packaged Goods published in December 2012. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.