NEW YORK – Moody’s Investors Service on Sept. 10 assigned a Baa2 rating to $750 million in unsecured notes being sold by ConAgra Foods, Inc. in three tranches. Moody’s said the ConAgra outlook is stable.
The debt offering and the ratings assignment followed the August acquisition by ConAgra of the Bertolli and P.F. Chang’s Home Menu frozen meals business from Unilever P.L.C. for $267 million.

ConAgra has said it will use proceeds from the debt sale for general corporate purposes including repayment of commercial paper. ConAgra had about $300 million of commercial paper outstanding as of Sept. 7.

The offering consisted of $250 million of 1.35% senior notes due in 2015, $250 million of 2.1% senior notes due in 2018 and $250 million of 3.250% senior notes due in 2022.

Baa ratings of Moody’s are immediately below an A rating and, according to Moody’s “are subject to moderate credit risk, are considered medium-grade and as such may possess certain speculative characteristics.”

Explaining the rationale of the rating, Moody’s said ConAgra benefits from a diversified portfolio of well known branded products, mostly made up of “middle-tier brands.” About a quarter of ConAgra brands are No. 1 in their category.

“ConAgra’s solid Commercial Foods business adds stability to operating performance,” Moody’s said.
The ratings agency said an upgrade may result if the company were to generate stable cash flow while maintaining a “moderate financial policy.” More specifically, Moody’s set a target of cash flow to net debt sustained above 20% with an EBITA margin of 12% as an indicator that could trigger an upgrade.

By contrast, Moody’s said a downgrade may result from deteriorating operating performance or an “aggressive financial policy,” including leveraged acquisitions that would lead retained cash flow to net debt to fall below 14%. In the 12 months ended May 27, the figure was 22.6%.