TEXT-S&P: Blue Buffalo ratings unchanged after add-on
Nov 27 - Standard & Poor's Ratings Services said today that its ratings and outlook on Wilton, Conn.-based Blue Buffalo Co. Ltd. are unchanged following the company's announcement that it intends to issue a $50 million add-on facility to its existing term loan and use the proceeds to fund a special shareholder dividend. The issue-level rating on the company's revised $400 million senior secured term loan and existing $40 million revolving credit facility remains 'B+'. The recovery rating on these facilities remains '2', indicating our expectation for substantial (70%-90%) recovery for senior secured lenders in the event of a payment default. The ratings on Blue Buffalo reflect our view of the company's "aggressive" financial risk profile and "vulnerable" business risk profile. The company's aggressive financial risk profile reflects its substantial increase in debt and aggressive financial policy following this proposed debt-financed shareholder distribution, which closely follows the company's August 2012 debt-financed special dividend to shareholders. Key credit factors in our assessment of Blue Buffalo's business risk profile include its narrow product focus; customer, supplier, and geographic concentration; and the company's small size relative to its financially stronger and larger competitors; as well as the company's good market position and participation in the faster growing natural segment of the U.S. pet food industry. It is our opinion that Blue Buffalo's financial policy has become more aggressive given this second debt-financed dividend in less than six months. We estimate that leverage will not decline as quickly as we had previously expected because of the additional debt. Our outlook remains positive, given our continued expectations for a higher rating if Blue Buffalo is able to reduce leverage as planned, albeit at a slower rate than previously anticipated. However, if Blue Buffalo is unable to grow EBITDA and reduce leverage as expected, we would consider an outlook revision to stable. RATINGS LIST Blue Buffalo Co. Ltd Corporate credit rating B/Positive/-- Senior secured B+ Recovery rating 2 Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
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