Pricing on the $650 million credit facility for Chiquita Brands International was set as the tranches received split ratings from Standard & Poor's and Moody' Investors Service. The loan backs Chiquita's $855 million acquisition of Fresh Express and consists of a $150 million revolver, a $125 million "A" and a $375 million "B" loan. The five-year pro rata is priced at LIBOR plus 1 3/4%. The seven-year "B" loan is priced at LIBOR plus 2 1/4%. Wachovia Securities, Morgan Stanley and Goldman Sachs launched syndication of the deal at a bank meeting March 23.
S&P assigned a B+ rating to Chiquita's pro rata and a recovery rating of 3, indicating an expectation of 50-80% recovery of principal in the event of a payment default. Meanwhile, the $375 million "B" loan has a BB- rating and a recovery rating of 1, indicating 100% recovery of principal. Moody's Investors Service assigned a B1 rating to the bank debt and a B3 rating to a $150 million offering of senior unsecured notes.
"There is a clear distinction between the collateral packages attached to the different tranches in the facility," said Steve Kerr, an S&P analyst, adding that there are no cross-guarantees between the two. The revolver and "A" loan are secured by Chiquita's parent trademark and stock in the American and European subsidiaries. The "B" loan is secured by Fresh Express.
In this case, there are different paths of default for Chiquita and Fresh Express, Kerr said. Even in a default scenario for the parent, the Fresh Express business would likely be unaffected. "It is possible that Chiquita could draw some cash from the Fresh Express business to keep its banana business going and that could affect negatively the value of Fresh Express," he added. But a buyer of Fresh Express would value the business in terms of its growth expectations.
Fresh Express is the number one seller of packaged salads in the U.S., with about 40% retail market share and approximately $1 billion in sales. The outlook from S&P is negative despite Chiquita demonstrating improved operating performance over the past two years. A Chiquita spokesman declined comment.