Del Monte Stabilizes Cash Flow; Merrill Corp. Diversifies

Fitch Ratings has upgraded Del Monte Foods' senior secured bank debt ratings from BB- to BB on account of the company's improved credit metrics and stabilized cash flow following its acquisition of businesses from H.J. Heinz. The acquired businesses complement Del Monte's portfolio, Fitch states, adding that the manufacturer of branded canned fruit and vegetables has already paid down $150 million on its bank facilities since the closing of the transaction. Del Monte assumed $1.1 billion in debt and issued shares valued at $1.8 billion in order to finance the acquisition. The upgrade affects about $882 million in outstanding Del Monte debt.

The rating reflects Del Monte's strong cash flow and the company management's commitment to pay down debt and to grow the company's revenue, market share, EBITDA, margins and branded pricing premiums, Fitch notes. Higher operating cash flow is also anticipated as a result of Del Monte's larger size. More stability is expected as production and demand is less seasonal due to the new portfolio that includes the acquired products. Pro forma for the transaction, the San Francisco-based company's total debt-to-EBITDA is 3.4 times as of April 27. A spokesperson did not return calls by press time.

* Standard & Poor's raised its outlook for diversified communications and documentation services company Merrill Corp. to stable from negative. S&P affirmed Merrill's corporate and senior secured credit rating at B. The rating reflects the St. Paul, Minn.-based company's good market position in financial printing and its diversified customer base. S&P also notes that Merrill is increasing its focus on diversifying its business through such segments as its document management and real estate businesses. "[This] is expected to help provide more stable revenues and cash flows, which likely will help offset the variability of capital markets-related printing."

S&P also notes that the ratings reflect Merrill's significant debt levels, moderate-size cash flow base and competitive market conditions. "Obviously, debt levels are a consequence of a company being [bought] through an LBO," said Robert Nazarian, executive v.p. and cfo of Merrill. Merrill went private in 1999 after merging with Viking Merger Sub, an affiliate of DLJ Merchant Banking Partners. Merrill's diversification of revenues "has to some extent helped to offset the depressed financial markets," S&P further states. "We see this as a positive sign [and] a vote of confidence," for the company, said Nazarian.