Del Monte Corporation's $325 million revolving credit and $415 million term loan "B" has been assigned a Ba3 rating by Moody's Investors Service, reflecting the San Francisco fruit and vegetable giant's relatively low potential for organic volume and price growth and the potential for disruption from the energy crisis in California. But the report, written by senior analyst Helen Calvelli, also cites company's strengths, such as its dominant market position, brand equity, and the relatively stable underlying long-term consumption trends for its products.
Another positive is the fact that Del Monte is securing the revolver and term loan against all the tangible and intangible assets of the company in addition to a downstream guaranty from Del Monte Foods Company, the parent company, according to Moody's. Collateral coverage is deemed adequate and the revolver, there to cover the company's large seasonal swings in working capital, has a borrowing base mechanism governing usage.
Del Monte's leverage remains high though, according to Moody's, with pro forma debts totaling $859 million, and a debt/EBITDA ratio of 5.9x. Over the last year, high levels of capital spending and margin pressures resulting from higher fuel, power and weather related costs, have hindered attempts to reduce leverage. Del Monte's ability to adjust prices is constrained by the competitive market arena; and the mature markets the firm operates in have low growth potential. Unaffiliated groups can also use the Del Monte name in some markets and for fresh produce in the U.S., which further inhibits growth and carries risk if the name is mismanaged.