TEXT-S&P: US Foods Inc's rating unchanged after notes add-on

Fri Jan 11, 2013 10:53am EST

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Jan 11 - Standard & Poor's Ratings Services said today that the 'CCC+'
rating on Rosemont, Ill.-based US Foods Inc.'s (USF's) upsized $1.175 billion
senior unsecured notes due 2019, which includes the proposed $200 million
add-on, is unchanged. The recovery rating on the notes is '6', indicating our
expectation of negligible recovery (0% to 10%) for note holders in the event of
a payment default or bankruptcy. We expect that the proceeds from the add-on
offering will be used to repay over $190 million of USF's 11.25% senior
subordinated notes, the related make-whole premium, and fees. The ratings are
subject to change and assume the transaction is closed on substantially the
terms presented to us. 

All of our other existing ratings on the company, including the 'B' corporate 
credit rating, remain unchanged. The outlook is stable. Pro forma for the 
proposed transaction, total debt outstanding is about $4.9 billion.

USF's ratings reflect Standard & Poor's analysis that the company's financial 
risk profile will remain "highly leveraged" for the foreseeable future. This 
is based on our opinion that the company has a very aggressive financial 
policy and significant debt burden. It is our opinion that the company's gross 
margin will remain under pressure because of continued weak demand and higher 
expenses, specifically elevated food costs. However, we expect credit measures 
to show slight improvement through 2014 thanks to fixed cost reductions and 
some debt repayment. Over the next year, we expect adjusted leverage to 
approach 7x and the ratio of funds from operations (FFO) to total debt to 
remain weak at roughly 8.5%. 

Our "fair" business risk assessment reflects USF's participation in an 
intensely competitive, low-margin industry. The company benefits from its 
satisfactory market position, relatively stable historic industry demand, and 
broad geographic diversification within the U.S. Nevertheless, the potential 
for meaningfully higher food costs next year (stemming from the 2012 drought) 
is a key risk factor. If food prices increase significantly, USF's 
profitability could fall. This could occur if volume drops because of fewer 
people purchasing food away from home, or if food service distributors are 
unable to pass through most food-cost inflation to customers.

For the complete corporate credit rationale, please see the research update on 
US Foods Inc. published Nov. 30, 2012, on RatingsDirect.  

RELATED CRITERIA AND RESEARCH
     -- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012
     -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011 
     -- Key Credit Factors: Criteria For Rating The Global Branded Nondurable 
     -- Consumer Products Industry, April 28, 2011
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008

RATING LIST
Rating unchanged
US Foods Inc.
 Corporate credit rating             B/Stable/--
 Senior secured                      B-
   Recovery rating                   5
 Senior unsecured 
  $1.175 mil. 8.5% notes             CCC+
    Recovery rating                  6


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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