CSM Bakery Solutions LLC Outlook Revised To Stable From Positive On Slower Recovery of Business; 'CCC+' Affirmed

  • CSM Bakery Solutions LLC's year-to-date Sept.30, 2018, financial performance is below our expectations and we no longer expect material leverage reduction towards 8x.
  • We expect some improvements in 2019 but at a slower pace, as the company is still working towards turning the business around after a 2016 disruption in its North America operations.
  • We are affirming all ratings on the company, including the 'CCC+' issuer credit rating.
  • We are revising our outlook to stable from positive to reflect our expectation for modest leverage reduction in 2019 and breakeven free operating cash flow.
NEW YORK (S&P Global Ratings) Dec. 6, 2018--S&P Global Ratings today took the 
rating actions listed above. The stable outlook reflects continued challenges 
in turning around its business after an enterprise resource planning (ERP) 
software issue in 2016, which led to the loss of about €100 million worth of 
business and to negative EBITDA through the first half of 2017. The company 
has lowered its EBITDA guidance for 2018 by about €20 million as regaining 
former customers at profitable levels has been slower to occur than 
anticipated. The company also reported lower earnings from its Europe business 
so far in 2018, as the summer was very warm and demand for bakery products 
declined. But the company has made significant progress since the disruption 
occurred, replacing management and replacing lost customers while restoring 
service levels back to above historical levels, but at a slower pace than 
originally anticipated. 

The stable outlook reflects our expectation that the company will continue to 
make progress towards leverage reduction as it incurs less restructuring costs 
to right-size the business, realizes cost savings, and improves its 
profitability. We expect leverage to remain near 9x over the next 12 months 
and free operating cash flow to be breakeven in 2019. 

We could lower the ratings if the company is unable to refinance its capital 
structure before it becomes current in July 2019. Additionally, we could lower 
the ratings if the company is unable to regain lost business or recognize 
savings from its restructuring and transformation program, such that EBITDA is 
lower, debt leverage remains in the double-digits, and fixed charge coverage 
remains below 1x. 

We could raise the ratings if we forecast continuous EBITDA improvement due to 
new customer wins and cost savings leading to leverage approaching 8x and 
fixed charge coverage exceeding 1x and we expect ongoing improvement of both 
of those metrics.  An upgrade will further be predicated on the company 
refinancing its capital structure before it becomes current.