Corelle Brands Holdings Inc. 'B+' Rating Affirmed On Merger; Outlook Stable; Debt Rating Raised To 'BB' (Recovery: 1)


  • U.S.-based Corelle Brands Holdings Inc. recently merged with Canada-based Instant Brands in a transaction valued at roughly $1 billion.
  • The transaction is being funded through a $243 million subordinated seller note, $100 million bridge loan, and equity with Instant Brand owners receiving roughly 35% ownership of the combined entity.
  • We estimate that pro forma leverage for the transaction will be approximately 3.6x and decline closer to 3x by the end of 2019, which is within our expectations for the current rating.
  • We affirmed our 'B+' issuer credit rating on Corelle Brands Holdings Inc.
  • At the same time, we raised our issue-level rating on the company's $200 million senior secured term loan B due 2024 to 'BB' from 'BB-' and revised the recovery rating to '1' from '2'. The '1' recovery rating indicates our expectation for very high (90%-100%; rounded estimate: 95%) recovery of principal for term loan lenders in the event of default.
  • The stable outlook reflects our expectation that leverage will be in the 3x area in the near term, while recognizing that execution risk remains high as the company attempts to seamlessly integrate Instant Brands, while meeting its outsized demand and achieving synergies. Furthermore, leverage will likely be managed between 4x to 5x over the intermediate term under Cornell Capital's ownership as the company continues to pursue acquisitions.
NEW YORK (S&P Global Ratings) April 24, 2019--S&P Global Ratings today took the rating actions listed above. The affirmation reflects our generally positive view of the merger, which offers a favorable growth outlook and deleveraging prospects for the combined entity, but also reflects the risk of Instant Brands' relatively limited track record. The merger with Instant Brands provides Corelle with significantly more favorable growth prospects primarily driven by the addition to its product portfolio of Instant Pot, an electronic pressure cooker. The Instant Pot product has been extremely successful over the last three years through the e-commerce channel and has been the bestselling product on Amazon Prime Day three years in row leading the company to more than double its revenue base each of those years. We believe that Instant Brands will benefit from Corelle Brands international's supply chain and customer relationships to still achieve double-digit growth over the next two years. The merger also greatly enhances the scale and margin profile of Corelle Brands with pro forma revenues of $1.2 billion as of year-end 2018 and adjusted EBITDA margins near 20% from approximately 13% for the legacy Corelle Brands business. However, the combined entity still has narrow focus in the highly competitive dinnerware and small appliance categories, which face exposure to changing consumer preferences and offer limited organic growth prospects for the legacy Corelle Brands business. Furthermore, we expect 2019 to continue to be a transition period for Corelle Brands as it further rationalizes its store base and SKU offerings aiming at better profitability but lower sales in the near term.
The stable outlook reflects our expectation that leverage will be in the 3x area in the near term, while recognizing that execution risk remains high as the company attempts to seamlessly integrate Instant Brands, while meeting its outsized demand and achieving synergies. Furthermore, leverage will likely be managed between 4x to 5x over the intermediate term under Cornell Capital's ownership as the company continues to pursue acquisitions.
We could raise the rating if the company successfully integrates Instant Brands and generates significant free cash flow, leading to leverage below 4x on a sustained basis in conjunction with the sponsors' commitment to maintain leverage at those levels. Alternatively, we could also raise the rating if we favorably reassess our view of the company's business risk, which could occur if the company increases its current revenue base and scale while significantly improving its product diversity commensurate with higher rated peers.
We could consider lowering the ratings if operating performance deteriorates because of integration challenges with Instant Brands or because of an increasing competitive environment leading to a major drop in profitability and leverage sustained above 5x or sustained negative free operating cash flow (FOCF) generation. We could also lower the ratings if the company significantly increases its debt through a debt-financed acquisition or dividend resulting in leverage being sustained above 5x.
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