February 15, 2013 / 4:10 PM / 5 years ago

TEXT-Fitch cuts Heinz ratings to 'BB+' on buyout announcement

Feb 15 - Fitch Ratings has downgraded the ratings of H.J. Heinz 
(Heinz: NYSE: HNZ) and its subsidiaries following the firm's announcement that
it had entered into a definitive agreement to be acquired by a consortium
comprised of Berkshire Hathaway and 3G Capital. Fitch also placed Heinz's
ratings on Watch Negative. Additional downgrades could occur upon review of
final financing terms and the firm's capital structure once the deal is
consummated. The downgrades are as follows:

H.J. Heinz Co.
--Long-term Issuer Default Rating (IDR) to 'BB+' from 'BBB+';
--Bank facilities to 'BB+' from 'BBB+';
--Senior unsecured debt to 'BB+' from 'BBB+';
--Short-term IDR to 'B' from 'F2';
--Commercial paper (CP) to 'B' from 'F2'.

H.J. Heinz Finance Co. (HFC)
--Long-term IDR to 'BB+' from 'BBB+';
--Bank facilities to 'BB+' from 'BBB+';
--Senior unsecured debt to 'BB+' from 'BBB+';
--Series B Preferred Stock to 'BB-' from 'BBB-';
--Short-term IDR to 'B' from 'F2';
--CP to 'B' from 'F2'.

H.J. Heinz Finance UK Plc.
--Long-term IDR to 'BB+' from 'BBB+';
--Senior unsecured debt to 'BB+' from 'BBB+'.

The going private transaction is valued at $28 billion, including the assumption
of $5.3 billion of debt including hedge accounting adjustments at Oct. 28, 2012.
The offer represents a 20% premium to Heinz's closing share price on Feb. 13,
2013, a 30% premium to the firm's one-year average share price, and translates
to more than 13x Heinz's approximate $2.1 billion of EBITDA for the LTM period
ended Oct. 28, 2012. The buyout was unanimously approved by Heinz's board of
directors and is expected to close in the third calendar quarter of 2013,
subject to shareholder and regulatory approval.

Fitch estimates that Heinz's leverage could increase to 5.0x or more from 2.5x
at Oct. 28, 2012, assuming an equity contribution in the 60% range and post-LBO
debt of $10 billion or more. Despite the company's strong business profile and
solid FCF generation, Fitch's views this substantially higher level of financial
risk as not being commensurate with an investment grade rating. Moreover, Fitch
is concerned that new debt issued to finance the transaction may have better
terms than those of Heinz's existing public notes. Fitch also notes that several
of Heinz's public debt issuances prior to 2008 do not have a change of control
put feature, potentially placing these noteholders at a disadvantage.

Future developments that may, individually or collectively, lead to a positive
rating action or Outlook revision include:

An upgrade of Heinz's ratings is not anticipated in the near term. Commitment to
deleveraging could be a consideration but might not materially change credit
protection measures in the near term given the large amount of debt. Potential
asset sales in combination with directing much of the firm's free cash flow
towards debt reduction might support upward migration in the ratings over time.

Future developments that may, individually or collectively, lead to a negative
rating action include:

Further downgrades could occur upon closing of the transaction based on the
ultimate capital structure and the cushion in credit protection measures in the
medium term. Management's financial posture given this transaction would
indicate a comfort with high leverage over the medium term that could weigh on
the rating.

Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012).

Applicable Criteria and Related Research:
Corporate Rating Methodology

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