Dean Foods Co.'s $1.5 billion term loan has been changing hands in the 100-100 1/2 context, with interest surging after the company's stock stumbled approximately 20%. Record-high commodity prices and a reported $4 million loss from a failed hedging operation contributed to reduced profit forecasts, a trader said. The company's $1.5 billion revolver was quoted in the same range, but was not trading.
The Dallas-based milk processor's debt kept trading around par because there is a high recovery expected on the bank debt, the trader noted. Commodity prices have gone up to unprecedented levels, impacting Dean Foods at the product, packaging and transportation levels, said Jayne Ross, a Standard & Poor's credit analyst. However, she noted that the challenges brought by these prices are not company-specific. ConAgra Foods and Sara Lee Corp. were cited by the analyst as other firms affected by raising commodity costs during the year.
Despite the significant drop in the equity price, Ross said S&P would expect a 100% recovery on the brands. "They'll retain their value in the case of default," she added. Wachovia Securities and J.P. Morgan lead the bank debt, which is priced at LIBOR plus 1 1/4%. Last month Dean Foods replaced its "B" loan and increased the size of its pro rata during syndication (LMW, 8/9). Spokespeople at ConAgra and SaraLee did not return calls. Cory Olson, Dean Foods' senior v.p. and treasurer, also did not return calls.