The asset-based deal for National Dairy Holdings will provide adequate coverage for investors, even in a stressed default scenario, according to Moody's Investors Service. The rating agency recently assigned a Ba2 rating to the company's new $425 million credit, which is currently in the market. The company's real and intangible assets, including its subsidiaries' stock, secure the Wachovia Bank-led credit. In addition, bank lenders will also be protected by upstream subsidiary guarantees.
The new rating also accounts for the company's position as the second largest dairy company in the United States. The credit is supported by the company's seasoned management and the competitive, low-margin nature of the dairy industry. Dairy Farmers of America also holds 86% equity interest in the company and the dairy co-op has a history of providing support to its affiliates.
The company was created in 2001 as a combination of other existing dairy companies and Moody's is still evaluating how the company will operate as one entity. The ratings also take into account National Dairy's significant adjusted leverage, including off-balance sheet leases and potential acquisitions as the dairy industry consolidates. The rating agency will still have to evaluate the company's long-term strategy and the effect on its leverage of future acquisitions, which Moody's expects to be financed through debt. The facility comprises a $125 million revolver, a $125 million term "A" loan and a $175 million term "B" loan and will be used in part to fund National Dairy's acquisition of Milk Products in May.