See the full list of Tyson's ratings at the end of this press release. At
The Rating Outlook is Stable.
Proceeds from the term loans form part of the financing for Tyson's
The new senior unsecured term loans rank pari passu with Tyson's existing debt, most of which includes a guarantee from
The three-year and five-year term loan A tranches amortize quarterly at a rate of 2.5% while the five-year term loan B tranche is a bullet maturity. The loans are subject to financial maintenance covenants that replicate those in Tyson's recently amended revolving credit facility discussed in the Liquidity, Maturities, and Covenants section below.
KEY RATING DRIVERS
Equity Financing for Hillshire Acquisition and Post Closing Deleveraging:
Complementary, Margin-Accretive Nature of Transaction; Realization of Meaningful Synergies:
Fitch views the pending acquisition of Hillshire as in line with Tyson's strategy of expanding in prepared foods and value-added products. Pro forma for the acquisition, prepared foods will increase to 18% and 20% of Tyson's revenue and operating income, respectively, from 9% and 5% during the LTM ended
The mid-16x multiple Tyson expects to pay for Hillshire, however, is rich and ranks historically as one of the highest among U.S. food company transactions. Tyson estimates that the purchase multiple is approximately 10.5x including its projected
Earnings Remain Strong:
Fitch expects fiscal 2014 to mark the fifth consecutive year of strong operating performance for Tyson. After absorbing about
During the first half of fiscal 2014, ended
Industry Fundamentals Are Mixed; Diversification Is A Plus:
Fitch expects industry margins in beef to continue to be pressured by record low U.S. cattle supply over the near term, while Porcine Epidemic Diarrhea (PED) disease across farms in the mid-west has reduced U.S. hog supplies. However, low corn and feed cost should continue to support profitability for chicken producers, result in increased hog weights, and incentivize ranchers to start rebuilding cattle herds. Protein demand should remain relatively intact over the near term.
Liquidity, Maturities and Debt Terms:
Tyson's revolving facility expires
Positive: Future developments that may, individually or collectively, lead to an upgrade include:
--An upgrade is not likely in the next 12-18 months due to the meaningful increased leverage following the acquisition of Hillshire and potential integration risk.
However, what could lead to a rating upgrade would be:
--100 bps or more of EBITDA margin expansion,
--Annualized FCF increase averaging around
--Greater than expected debt reduction such that total debt-to-operating EBITDA is sustainable at the low-end of 2x-2.5x range due a combination of operating income growth and debt reduction, and the maintenance of
Negative: Future developments that may, individually or collectively, lead to a negative rating action include:
--Weak top-line growth or significant margin contraction due to prolonged supply or demand imbalances resulting from animal diseases or higher feed cost and substantially lower than expected FCF such that total debt-to-operating EBITDA is sustained above approximately 2.5x.
--Additional material size acquisitions over the near-term or aggressive financial policies relating to dividends and share repurchases would be viewed negatively.
Tyson's current ratings are as follows:
--Long-term Issuer Default Rating (IDR) 'BBB';
--Short-term IDR 'F2';
--Unsecured bank facility 'BBB';
--Senior unsecured notes 'BBB'.
Additional information is available at 'www.fitchratings.com'.
--'Corporate Rating Methodology' (
--'Parent and Subsidiary Rating Linkage - Fitch's Approach to Rating Entities within a Corporate Group Structure;
--'Fitch Views Pilgrim's Pride Takeover Bid for Hillshire as Neutral to JBS' Credit Quality' (
--'Fitch Upgrades Tyson's S-T IDR to 'F2' and Affirms L-T IDR at BBB; Outlook Positive' (
Parent and Subsidiary Rating Linkage
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
Source: Fitch Ratings
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