NEW YORK, March 10 (IFR) - Moody’s Investors Service downgraded US food manufacturer J. M. Smucker by two notches to Baa2 Tuesday on expectations the company’s debt-financed acquisition of Big Heart Pet Brands will increase leverage.
J.M. Smucker is expected to come to the bond market soon, having mandated Bank of America Merrill Lynch and J.P. Morgan to arrange U.S. fixed income investor calls. It agreed to buy Big Heart Pet Brands for US$3.2bn last month.
Moody’s expects leverage to rise to 4x earnings when the deal closes from around 2.3x now.
Smucker plans to fund the acquisition through a recently arranged US$1.75bn five-year bank term loan, while the bonds are expected to refinance a US$3.75bn bridge loan.
“Other key considerations include the recent high earnings volatility in the company’s coffee business and significant integration and execution risks related to its entree into the attractive, but highly competitive, pet food industry where Big Heart competes against larger companies and stronger brands in mainstream and specialty pet foods,” Moody’s said. (Reporting by Natalie Harrison, IFR Markets)