Dean Foods Co. Downgraded To 'B-', On CreditWatch Negative

  • Fluid milk producer Dean Foods Co. announced it is currently in discussions to refinance its revolving credit facility following an agreement with its Receivable Purchase Agreement (RPA) lender to waive the financial covenant requiring Dean Foods to maintain the total net leverage ratio below 4.25x for the period ending Dec. 31, 2018. We believe this amendment and the announced refinancing indicates a deteriorating liquidity position following weaker-than-expected operating performance.
  • S&P Global Ratings lowered its issuer credit rating on Dean Foods Co. to 'B-' from 'B+', and the issue-level ratings on the company's $450 million revolving credit facility maturing in 2022 to 'B+' from 'BB'. The recovery rating remains '1'. We also lowered the issue-level rating on the company's $700 million senior unsecured debt due in 2023 to 'B-', from 'B+'. The recovery rating remains '3'.
  • At the same time, we are placing all ratings on CreditWatch with negative implications reflecting the company's near term need to refinance its bank facilities with less onerous financial covenants and extend its RPA to restore adequate liquidity.
  • We will resolve the CreditWatch listing once the company addresses its refinancing and reports fiscal year-end financial performance.
NEW YORK (S&P Global Ratings) Feb. 1, 2019—S&P Global Ratings today took the 
rating actions listed above. The downgrade and negative CreditWatch listing 
reflect our view that Dean Foods' operating performance deteriorated 
meaningfully during the fourth quarter ended Dec. 31 2018, given the company's 
need to seek an amendment on its RPA facility to maintain borrowing 
availability, and need to refinance its revolving credit facility for more 
financial flexibility. The amendment allows the company to waive compliance 
with the financial covenant under the exiting RPA facility until March 1, 
2019. The company disclosed in a Jan. 17, 2019, 8-K filing that it would seek 
to complete the refinancing of its credit facilities by March 1, 2019. While 
we believe Dean Foods will be able to amend its RPA and replace the revolver 
by this date to ensure liquidity, we nonetheless believe operating with 
limited borrowing availability only through March 1 2019(absent another 
agreement) exposes the company to undue liquidity risk.  

The CreditWatch negative placement reflects Dean Foods' weakened liquidity 
position and our belief that fiscal 2018 operating performance was materially 
weaker than expected. We will resolve the CreditWatch placement following the 
completion of its bank facility refinancing, the extension of its Receivables 
Purchase Agreement, and receipt of its fiscal year end audited financial 
statements. We will also evaluate Dean's ability to maintain sufficient 
liquidity for working capital needs, and it ability to generate sufficient 
cash flow to invest in capital expenditures and business improvement 
initiatives while still servicing its debt. We could lower our ratings on Dean 
Foods if liquidity is not restored within the next month; otherwise, we would 
likely affirm our ratings at the present level following our review.
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