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April 21, 2008 |
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PILGRIM'S PRIDE: Moody's Places Ratings for Likely Downgrade Moody's Investors Service has placed under review for possible downgrade the ratings of Pilgrim's Pride Corporation, including the company's Ba3 corporate family rating. This review action was based on Moody's concern that the company may be challenged to meet its bank covenants and thereby maintain adequate liquidity and credit metrics appropriate for its rating given the expected adverse impact of high feed grain costs on profitability and cash flow. LGD assessments are also subject to adjustment. Ratings under review for possible downgrade: -- Corporate family rating at Ba3 -- Probability of default rating at Ba3 -- US$400 million 7.625% senior notes due 2015 at B1 -- US$250 million senior subordinated notes due in 2017 and US$5.1 million (original US$100 million) senior subordinated notes due 2013 at B2 Ratings withdrawn (debt repaid) -- Senior notes due 2011 at B1 Pilgrim's Pride anticipates that its fiscal 2008 feed grain costs will rise by more than US$700 million over the prior fiscal year. This is in addition to 2007's feed grain cost increase of approximately US$600 million. Since the company's reported fiscal 2007 EBITDA, pro forma for the acquisition of Gold Kist, was only US$414.7 million, the anticipated increase in input costs in fiscal 2008 is likely to severely hurt margins, in Moody's view. Cost inflation may not be able to be fully passed along to customers on a timely basis given competition and an undoubted reluctance by food service customers to continue to absorb higher costs themselves. Pilgrim's Pride's realization of US$155 million in synergies as of Dec. 29, 2007 from the Gold Kist acquisition is not sufficient to materially soften the effect of highly inflationary costs. The prospect of further pressure on profitability leads to Moody's concern about the ability to comply in the future with financial covenants in bank credit agreements and thereby maintain adequate liquidity. Moody's review will focus on the impact on near term profitability of the company's plan to reduce weekly chicken processing by about 5% in the second half of fiscal 2008 and to close 6 of 13 US distribution centers; on initiatives to boost sales and operating margins over the longer term in the face of what could be further cost inflation; and on liquidity, including projected covenant compliance and likely usage of the company's committed bank credit facilities, primarily its US$550 million revolving credit, its US$300 million asset backed revolving credit, and its US$300 million accounts receivable securitization. Headquartered in Pittsburg, Texas, Pilgrim's Pride Corporation is the world's largest chicken company. Sales for the twelve months ended Dec. 29, 2007 exceeded US$8.3 billion. Headquartered in Pittsburgh, Texas, Pilgrim's Pride Corporation (NYSE: PPC) -- http://www.pilgrimspride.com/ -- produces, distributes and markets poultry processed products through retailers, foodservice distributors and restaurants in the U.S., Mexico and in Puerto Rico. Pilgrim's Pride employs about 40,000 people and has major operations in Texas, Alabama, Arkansas, Georgia, Kentucky, Louisiana, North Carolina, Pennsylvania, Tennessee, Virginia, West Virginia, Mexico and Puerto Rico, with other facilities in Arizona, Florida, Iowa, Mississippi and Utah. |
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