TEXT-S&P: Dean Foods ratings unchanged after Morningstar annoucement

Tue Dec 4, 2012 11:00am EST

Dec 4 - Standard & Poor's Ratings Services said today that its ratings and
outlook on Dallas-based Dean Foods Co. (B+/Positive/--) and its subsidiary, Dean
Holding Co., currently are unchanged following the company's announcement that
it has entered into an agreement to sell its Morningstar Foods division for
$1.45 billion (or net proceeds of $887 million) to Saputo Inc. (not rated), a
Canada-based dairy processor. Dean Foods stated that it intends to use
substantially all of the net proceeds from the sale of Morningstar, which is one
of Dean Foods' higher margin businesses, to retire outstanding debt under its
senior secured credit facility. 

In conjunction with this transaction, Dean Foods, WhiteWave Foods Co. (a 
majority owned subsidiary), and Morningstar have entered into agreements 
relating to transfers of manufacturing capacity and equipment.

We will evaluate the effect of a sale of Morningstar on our ratings when more 
details become available regarding the timing of the proposed transaction and 
remaining capital structure at Dean Foods. The proposed sale of the company's 
Morningstar operations will be reviewed in terms of its potential impact on 
Dean Foods' existing "fair" business risk profile and "highly leveraged" 
financial risk profile. We believe a divestiture of Morningstar could weaken 
our assessment of Dean Foods' overall business risk profile given the loss of 
this higher margin earnings source, yet we will also evaluate the impact of 
the application of expected sale proceeds on the company's financial risk 
profile. 

We had previously anticipated we could consider an upgrade if Dean Foods 
sustained strengthened credit measures following the IPO and spin-off of its 
WhiteWave business, including an adjusted total debt-to-EBITDA ratio at 4.5x 
or less. However, given the expected weaker business risk profile resulting 
from a sale of Morningstar, we will reassess this measure as part of our 
evaluation of the potential impact of the Morningstar transaction on our 
ratings.
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