Ratings outlook for CSM Bakery Solutions lowered to negative

by Jeff Gelski
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NEW YORK – Moody’s Investors Service, Inc. on July 22 changed the ratings outlook for CSM Bakery Solutions Ltd. to negative from stable. Moody’s affirmed the B2 corporate family rating and the subsidiary debt instrument ratings on CSM Bakery Solutions’ proposal to expand its senior secured term loans by $313 million to partially fund a one-time cash distribution to the equity sponsor.

CSM Bakery Solutions plans to increase its $693 million first-lien term loan to $850 million and its $150 million second-lien term loan to $306 million to fund a portion of a €300 million ($404 million) dividend. Cash on hand and a short-term draw from the company’s asset-based revolving credit facility will fund the remaining portion.

Moody’s said the proposed recapitalization will result in high leverage as proforma debt/EBITDA will rise to about 6.8x from about 5.3x.

“Leverage should decline comfortably below 6.0x within a year, barring any unforeseen challenges,” Moody’s said. “The negative outlook reflects the lack of a proven operating track record under the new management team and an apparent shift to a more aggressive financial policy than Moody’s anticipated when the equity sponsors (Rhone Capital and affiliates) purchased the company about a year ago.”

Affiliates of Rhone Capital in 2013 purchased CSM Bakery Supplies, now CSM Bakery Solutions, from CSM n.v., which changed its name to Corbion, for an enterprise value of €1,050 million. CSM Bakery Solutions 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 proposed debt-financed dividend will add about a turn-and-a-half leverage to a business that was already highly leveraged based on its low margins and limited operating history as a stand-alone entity,” said Brian Weddington, a senior credit officer for Moody’s. “However, free cash flow should be adequate to restore credit metrics within our 18-month rating horizon.”
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