S&P changes Ralcorp ratings outlook to negative

by Jeff Gelski
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SAN FRANCISCO – Standard & Poor’s Ratings Services on March 13 affirmed its ratings, including its “BBB-“ corporate credit rating, on St. Louis-based Ralcorp Holdings Inc. and removed the company from CreditWatch, where it had been placed with negative implications on May 4, 2011. The outlook is negative.

“The affirmed ratings reflect the debt reduction and our expectation that Ralcorp will reduce leverage to under 3x within 24 months,” said Bea Chiem, Standard & Poor’s credit analyst. “The negative outlook is based on uncertainty about Ralcorp’s ability to improve credit protection measures during the next 18 to 24 months to maintain the current ratings, including reducing lease-and-pension adjusted leverage to below 3x and improving funds from operations to total debt to at least 20% by the end of fiscal 2013.”

Standard & Poor estimates, pro forma for the debt reduction, Ralcorp has about $1.9 billion of reported debt outstanding. Including adjustments for operating leases and pension obligations, Standard & Poor estimates Ralcorp has about $2 billion of total adjusted debt outstanding.

The CreditWatch placement in May of 2011 followed an unsolicited all-cash proposal from Omaha-based ConAgra Foods, Inc. to acquire Ralcorp for $4.9 billion, plus the assumption of $2.5 billion of debt. ConAgra subsequently raised its offer on Aug. 11, 2011, to about $5.2 billion, plus the assumption of $2.4 billion of debt. Ralcorp rejected all proposals. ConAgra withdrew its offer on Sept. 19, 2011.

“… We believed uncertainty remained regarding Ralcorp’s future financial policies as a result of the company’s plan to separate Ralcorp and Post in a tax-free spin-off to Ralcorp shareholders, as announced on July 14, 2011,” said Standard and Poor’s.

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