Flavors Holdings Inc. Downgraded To 'CCC' On Elevated Refinancing Risk, Outlook Negative

  • Flavors Holdings Inc.'s liquidity profile continues to weaken because the company has not addressed the October 2019 maturity of its $50 million revolving credit facility or its very tight covenant cushion ahead of the first-quarter 2019 step-down on its first-lien leverage covenant.
  • We believe the risk of default has increased and, absent a positive liquidity event, the company may need to restructure its balance sheet.
  • We are lowering our issuer credit rating on Flavors to 'CCC' from 'CCC+'.
  • At the same time, we are lowering our issue-level rating on the company's first-lien debt to 'CCC' from 'CCC+' and our issue-level rating on its second-lien debt to 'CCC-' from 'CCC'. Our recovery ratings on the debt remain unchanged.
  • The negative outlook reflects that we could lower our ratings on Flavors Holdings over the next several quarters if the company is unable to extend its revolver maturity and avoid a payment default on its outstanding borrowings or if we believe that it will breach its financial maintenance covenant without any remedy, such as a cure, from its owners.
NEW YORK (S&P Global Ratings) March 5, 2019—S&P Global Ratings today took the 
rating actions listed above. The downgrade reflects the company's elevated 
refinancing and default risk due to its near-term maturities.Flavors Holdings 
has still not extended the maturity of its $50 million revolver, which is set 
to mature in October 2019. Additionally, its first-lien term loan becomes 
current on April 3, 2019. We do not view the company as having prudent risk 
management, given its failure to prioritize and address its near-term 
maturities. Flavors Holdings' revolver is almost fully drawn ($48 million 
outstanding as of December 2018) and, absent a positive event, the company 
will not have the liquidity to repay these borrowings, which could lead to a 
distressed exchange or an event of default. The company's revolver balance 
grew to these levels because management decided to invest in growing its Whole 
Earth product instead of preserving its liquidity.

The negative outlook on Flavors reflects that we could lower our ratings on 
the company in the coming quarters if its liquidity position continues to 
weaken and we believe a default is imminent.

We could lower our ratings on Flavors if the company does not address the 
maturity of its revolver and its first-lien term loan becomes current in April 
2019. We could also lower the ratings if MacAndrews & Forbes does not address 
the covenant step-down leading to a technical default.

We could raise our rating on Flavors if the company is able to refinance its 
capital structure before its revolver matures in October 2019 and its 
first-lien term loan becomes current. Additionally, the company would need to 
renegotiate its financial covenants, which we expect will remain very tight 
given the ongoing step-downs, before we would raise our rating.
We work across the world

From London to San Francisco, to our home base in (Saint Helier) Jersey, we’re looking for extraordinary and creative scientists to help us drive the field forward.

AC Investment Inc. currently does not act as an equities executing broker or route orders containing equities securities. If AC Invest’s business model were to change and it begins routing non-directed orders in NMS securities, it will comply with the disclosure requirement of Rule 606.

77 Massachusetts Avenue Cambridge, MA 02139 617-253-1000 pr@ademcetinkaya.com