May 4, 2012 / 9:50 PM / in 6 years

TEXT-Fitch may cut Dole Food Co ratings

May 4 - Fitch Ratings has placed the ratings of Dole Food Co., Inc. (Dole;
NYSE DOLE) and its wholly-owned subsidiary Solvest Ltd. on Rating 	
Watch Negative. 	
The Rating Watch follows Dole's May 3, 2012 announcement that it has initiated a	
strategic review of its business in order to enhance shareholder value. 	
The current ratings are as follows:	
Dole (Operating Company)	
--Long-term Issuer Default Rating (IDR) 'B+';	
--Asset-based (ABL) revolver due 2016 'BB+/RR1';	
--Secured term loan B due 2018 'BB+/RR1';	
--13.875% third-lien notes due 2014 'BB/RR2';	
--8% third-lien notes due 2016 'BB/RR2'.	
--8.75% senior unsecured notes due 2013 'B-/RR6'.	
Solvest Ltd. (Bermuda-Based Subsidiary)	
--Long-term IDR 'B+';	
--Secured term loan C due 2018 'BB+/RR1'.	
At March 24, 2012, Dole had $1.7 billion of total debt.	
Rating Rationale and Triggers:	
The Rating Watch Negative indicates that there is a heightened probability of a 	
downgrade depending on the outcome of Dole's strategic review. The review is 	
driven by Dole's belief that the equity market is not recognizing the value of 	
its faster growing higher margin Packaged Foods business. Alternatives outlined 	
by the company include a full or partial separation of one or more of its 	
businesses via a spin-off or other capital markets transactions. While 	
uncertainty as to the final outcome exists, Fitch views the probability for a 	
transaction as high. 	
In 2011, the Packaged Foods segment generated $1.2 billion or 17% of the Dole's 	
$7.2 billion of sales and $119 million of EBITDA. EBITDA margins have been in 	
the low double-digit range over the past three years, higher than the firm's 	
mid-single digit average. Should Dole's cash flow decline due to the separation 	
of the Packaged Foods business, significant debt reduction would be necessary to	
maintain ratings given the volatility and limited diversification of the 	
remaining business. Due to Dole's emphasis on enhancing shareholder value, Fitch	
is concerned about the amount of ultimate debt reduction resulting from any 	
transaction. Resolution of the Watch Negative will occur once details regarding 	
potential transactions are solidified and capital structure implications become 	
Current ratings reflect Dole's high financial leverage and the effect periodic 	
volatility in operating earnings and cash flow has on the company's credit 	
profile. Prior to the previously described announcement by the company, Dole's 	
financial strategy was to utilize free cash flow (FCF) and asset sale proceeds 	
to reduce debt while engaging in select tuck-in acquisitions. The company's 	
leverage goal was to achieve net debt-to-EBITDA of 2.0 times (x) over time. 	
The 'RR1' rating on Dole's secured credit facilities indicates that Fitch views 	
recovery prospects on these obligations as outstanding at 91% - 100% in a 	
distressed scenario. Similarly, the 'RR2' rating on the firm's third-lien notes 	
suggests that recovery rates would be viewed as superior in the 71% - 90% range 	
if Dole were in a distressed situation. However, the RR6 rating on the company's	
senior unsecured notes is due to Fitch's opinion that recovery could be poor in 	
the 0% - 10% range if the company restructured its capital structure. 	
Credit Statistics, Liquidity and Maturities:	
For the latest 12 month (LTM) period ended March 24, 2012, total 	
debt-to-operating EBITDA was 5.2 times (x), up from 4.6x at Dec. 31, 2011. 	
Operating EBITDA-to-gross interest expense was 2.4x, down from 2.6x and FFO 	
fixed charge coverage was 1.4x, versus 1.5x at year end. FCF was negative $41 	
million versus negative $77 million at year end. 	
Dole's credit statistics are currently weaker than Fitch had anticipated due to 	
recent operating income declines in the firm's Fresh Fruit and Fresh Vegetable 	
segments. Debt levels are also modestly higher than expected due to tuck-in 	
At March 24, 2012, Dole's liquidity was adequate at $279 million. Cash totaled 	
$106 million and availability under the firm's revolver was $173 million. Dole's	
$350 million ABL facility expires on July 8, 2016. Significant upcoming 	
maturities are limited to $155 million of senior unsecured notes due in July 	
Dole's only financial covenant is a springing fixed charge coverage ratio of at 	
least 1.0x if ABL availability is below a certain amount. The firm's debt 	
agreements contain restrictions related to asset sales and the application of 	
proceeds thereof.	
The ABL has a first-priority lien on U.S. account receivables and inventory and 	
a second-priority lien on real and intangible property. Term loans are secured 	
on a first priority basis by real and intangible property and on a second 	
priority basis by ABL collateral. Lastly, third-lien notes have the benefit of a	
lien on certain U.S. assets of Dole that is junior to the liens of the company's	
senior secured credit facilities. The company's debt is guaranteed by 	
substantially all U.S. subsidiaries.

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