High-Yield Food and Beverage Bonds Offer Good Protection

 |  Includes: BKC, DF, DLM, DOLE, RMK, SFD, STZ, TSN
by: Research Recap

Fitch Ratings suggests high-yield bonds of some food, beverage and restaurant companies may be worth a look as their risk of default is low. We are pleased to offer a complimentary download of Fitch’s full report, High Yield Food, Beverage, and Restaurants: Cross-Company Liquidity, Debt, and Covenant Analysis.

Selected highlights:

Fitch Ratings examines liquidity, debt structures and covenants for a subset of speculative grade food, beverage and restaurant companies. Fitch says liquidity is healthy, debt structures are fairly balanced between secured and unsecured obligations, and covenant restrictions provide adequate to good protection for bondholders.

Issuers reviewed and their IDRs include Tyson Foods, Inc. (NYSE:TSN) (Tyson; ‘BB’; Outlook Stable); Smithfield Foods, Inc. (NYSE:SFD) (Smithfield; ‘B-’; Outlook Stable); Dole Food Co. (NYSE:DOLE) (Dole; ‘B’; Outlook Stable); Del Monte Foods Co. (DLM) (Del Monte; ‘BB+’; Outlook Positive); ARAMARK Corporation (RMK) (ARAMARK; ‘B’; Outlook Stable); Burger King Corporation (BKC) (Burger King; ‘BB’; Outlook Stable); Constellation Brands, Inc. (NYSE:STZ) (Constellation; ‘BB’; Outlook Stable); and Dean Foods Co. (NYSE:DF) (Dean; Not Rated). In aggregate, these firms have nearly $24 billion of debt.

Credit implications for these high yield food, beverage and restaurant companies are stable to positive. - Carla Norfleet Taylor, Director at Fitch.

Del Monte’s (DLM) ratings have a Positive Outlook, after being upgraded in May, while continued debt reduction concurrent with strong operating performance by Tyson (TSN) could result in positive rating actions.’

Liquidity and latest 12-month free cash flow for the firms in Fitch’s universe currently averages approximately $800 million and more than $290 million, respectively. Roughly 57% of the $24 billion in debt of these companies is secured while 43% is unsecured. Fitch views Dole’s (DOLE) covenants as being most restrictive but believes Smithfield (SFD provides the most protection in a leveraged buyout because of change of control put options in all of its bonds.

‘Default risk for even the lowest rated companies, such as Smithfield and Dole, is no longer an immediate concern due to recent refinancing activity and improved operating results,’ said Wesley E. Moultrie, Senior Director at Fitch.

High Yield Food, Beverage, and Restaurants: Cross-Company Liquidity, Debt, and Covenant Analysis has been made available free of charge to Research Recap users for 30 days by special arrangement with Fitch Ratings, an Alacra content partner. After 30 days, the report will revert to its regular AlacraStore price of $275.