S.&P.: Flowers’ ratings not affected by Lepage

by Eric Schroeder
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CHICAGO — Standard & Poor’s Ratings Services on June 5 said its ratings and outlook on Thomasville, Ga.-based Flowers Foods Inc. are not affected by the company’s plan to purchase Lepage Bakeries Inc., a regional baking company based in Auburn, Maine. The ratings remain at BBB- and the outlook stable, S.&P. said.

Flowers late last month agreed to acquire Lepage Bakeries for $370 million, including $300 million in cash at closing, $20 million in total deferred cash payments beginning on the fourth anniversary of the closing date, and common stock valued at $50 million. Flowers has said it will use a significant portion of the proceeds from its April 2012 issuance of $400 million senior unsecured notes due 2022 toward the acquisition, which it expects to complete in its fiscal second quarter.

“Key credit factors in our ‘satisfactory’ business risk assessment include Flowers’ narrow product portfolio, leading market positions in the southern United States within the highly competitive fresh-baked goods industry, exposure to volatile commodity costs, moderate customer concentration, and geographic diversity within the U.S., yet a lack of international diversification,” S.&P. said. “The acquisition is intended to complement Flowers existing brands of breads, buns, and rolls. Lepage has three bakeries with available production capacity for Flowers’ expansion, especially of the Nature’s Own and Tastykake brands, in the Mid-Atlantic and Northeast markets.”

The ratings service said it believes credit metrics will remain near current levels through fiscal 2012. As of the first quarter ended April 21, 2012, S.&P. estimated adjusted debt to EBITDA was about 2.8x and the ratio of funds from operations to total adjusted debt was 27%.

“We expect the company’s pro forma credit metrics to be near or within the indicative ratios for Flowers’ ‘intermediate’ financial risk profile over the next 12-18 months as acquisition-related synergies and EBITDA expansion are realized,” S.&P. said.

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