May 4 - Fitch Ratings has placed the ratings of Dole Food Co., Inc. (Dole; NYSE DOLE) and its wholly-owned subsidiary Solvest Ltd. on Rating Watch Negative. The Rating Watch follows Dole's May 3, 2012 announcement that it has initiated a strategic review of its business in order to enhance shareholder value. The current ratings are as follows: Dole (Operating Company) --Long-term Issuer Default Rating (IDR) 'B+'; --Asset-based (ABL) revolver due 2016 'BB+/RR1'; --Secured term loan B due 2018 'BB+/RR1'; --13.875% third-lien notes due 2014 'BB/RR2'; --8% third-lien notes due 2016 'BB/RR2'. --8.75% senior unsecured notes due 2013 'B-/RR6'. Solvest Ltd. (Bermuda-Based Subsidiary) --Long-term IDR 'B+'; --Secured term loan C due 2018 'BB+/RR1'. At March 24, 2012, Dole had $1.7 billion of total debt. Rating Rationale and Triggers: The Rating Watch Negative indicates that there is a heightened probability of a downgrade depending on the outcome of Dole's strategic review. The review is driven by Dole's belief that the equity market is not recognizing the value of its faster growing higher margin Packaged Foods business. Alternatives outlined by the company include a full or partial separation of one or more of its businesses via a spin-off or other capital markets transactions. While uncertainty as to the final outcome exists, Fitch views the probability for a transaction as high. In 2011, the Packaged Foods segment generated $1.2 billion or 17% of the Dole's $7.2 billion of sales and $119 million of EBITDA. EBITDA margins have been in the low double-digit range over the past three years, higher than the firm's mid-single digit average. Should Dole's cash flow decline due to the separation of the Packaged Foods business, significant debt reduction would be necessary to maintain ratings given the volatility and limited diversification of the remaining business. Due to Dole's emphasis on enhancing shareholder value, Fitch is concerned about the amount of ultimate debt reduction resulting from any transaction. Resolution of the Watch Negative will occur once details regarding potential transactions are solidified and capital structure implications become certain. Current ratings reflect Dole's high financial leverage and the effect periodic volatility in operating earnings and cash flow has on the company's credit profile. Prior to the previously described announcement by the company, Dole's financial strategy was to utilize free cash flow (FCF) and asset sale proceeds to reduce debt while engaging in select tuck-in acquisitions. The company's leverage goal was to achieve net debt-to-EBITDA of 2.0 times (x) over time. The 'RR1' rating on Dole's secured credit facilities indicates that Fitch views recovery prospects on these obligations as outstanding at 91% - 100% in a distressed scenario. Similarly, the 'RR2' rating on the firm's third-lien notes suggests that recovery rates would be viewed as superior in the 71% - 90% range if Dole were in a distressed situation. However, the RR6 rating on the company's senior unsecured notes is due to Fitch's opinion that recovery could be poor in the 0% - 10% range if the company restructured its capital structure. Credit Statistics, Liquidity and Maturities: For the latest 12 month (LTM) period ended March 24, 2012, total debt-to-operating EBITDA was 5.2 times (x), up from 4.6x at Dec. 31, 2011. Operating EBITDA-to-gross interest expense was 2.4x, down from 2.6x and FFO fixed charge coverage was 1.4x, versus 1.5x at year end. FCF was negative $41 million versus negative $77 million at year end. Dole's credit statistics are currently weaker than Fitch had anticipated due to recent operating income declines in the firm's Fresh Fruit and Fresh Vegetable segments. Debt levels are also modestly higher than expected due to tuck-in acquisitions. At March 24, 2012, Dole's liquidity was adequate at $279 million. Cash totaled $106 million and availability under the firm's revolver was $173 million. Dole's $350 million ABL facility expires on July 8, 2016. Significant upcoming maturities are limited to $155 million of senior unsecured notes due in July 2013. Dole's only financial covenant is a springing fixed charge coverage ratio of at least 1.0x if ABL availability is below a certain amount. The firm's debt agreements contain restrictions related to asset sales and the application of proceeds thereof. The ABL has a first-priority lien on U.S. account receivables and inventory and a second-priority lien on real and intangible property. Term loans are secured on a first priority basis by real and intangible property and on a second priority basis by ABL collateral. Lastly, third-lien notes have the benefit of a lien on certain U.S. assets of Dole that is junior to the liens of the company's senior secured credit facilities. The company's debt is guaranteed by substantially all U.S. subsidiaries.