NEW YORK — Despite heavy pantry loading of products made by the company’s packaged foods customers in the first quarter, Hearthside Food Solutions experienced softening sales during the period, according to Moody’s Investment Services.

An update on privately-held Hearthside’s business was included in an announcement by Moody’s that a proposed new term loan would be assigned a B2 credit rating.

In addition to stepped-up demand from pantry loading, Hearthside benefited during the first quarter from an overall boost in in-home consumption during the quarter.

Business in other Hearthside channels was depressed.

“Management attributed the weakness to a decline in fresh sandwich sales as well as a decline in functional bar sales, which are sold at airports and other on-the-go locations and were thus impacted by reduced travel and commuting due to the coronavirus pandemic,” Moody’s said.

For the full year, the ratings agency projected flat revenues for Hearthside.

The B2 rating was assigned to H-Food Holdings, LLC (Hearthside), which is seeking a senior secured first lien term loan due in 2025. Moody’s also affirmed a B3 corporate family rating and B2 rating for $225 million first lien secured revolving credit facility and $1.6 billion senior secured first lien term loan.

Hearthside also has $350 million in senior unsecured global notes with a Caa2 rating.

A B2 rating is considered speculative and subject to high credit risk. The Caa2 rating is considered speculative, of poor standing and a high credit risk.

Hearthside will use the $100 million loan to repay about $97 million in borrowings under the first lien credit facility.

“Hearthside used the revolver borrowings to help fund a $130 million growth capital expenditures program that will expand its facilities and allow Hearthside to accommodate newly awarded contracts from its customers,” Moody’s said. “The borrowings increase Hearthside's already high leverage and cash interest.”

Explaining the rating, Moody’s said it believes Hearthside will reduce leverage through incremental EBITDA growth in 2020 and 2021.

Hearthside’s financial leverage, over 8 times EBITDA, has kept the company’s credit rating under pressure.

“The rating also reflects event risk, such as additional leveraged acquisitions and aggressive shareholder distributions, given the company's financial sponsor ownership,” Moody’s said. “At the same time, the rating incorporates the company’s good position as a contract manufacturer and packager of food products. The company has longstanding relationships with leading US food companies and limited commodity exposure due to pass-through cost arrangements. This helps limit cash flow and earnings volatility. The company has good liquidity.”

Based in Downers Grove, Ill., Hearthside is a contract manufacturer and packer of packed food products in North America and, to a lesser extent, Europe.  The company produces a variety of nutrition bars, cookies, cereals, baked foods and snacks at 38 manufacturing facilities across the United States and Europe. The company’s customers include General Mills, Kellogg, Kraft Heinz, PepsiCo and Mondelez International. The company has about $3.1 billion in annual revenues and is owned by an investment group led by Charlesbank Capital Partners and Partners Group following an April 2018 leveraged buyout.