Campbell, Hershey credit ratings take hit

Reuters

By Eleanor Duncan

NEW YORK, Dec 18 (IFR) - Agencies took action on the credit ratings of Campbell Soup and Hershey on Monday after the food companies each announced acquisitions that will increase debt.

Campbell is buying Cape Cod chips-maker Snyder's-Lance for US$4.87bn in cash, while Hershey is looking to spend around US$921m to acquire SkinnyPop popcorn maker Amplify Snack Brands.

Both agencies cited significant increase in debt resulting from the acquisition, as well as integration execution risks as reasons behind the rating actions.

Campbell plans to finance its deal through US$6.2bn of new unsecured debt, comprised of long-term and short-term instruments, Moody's said.

That would take the company's debt/EBITDA ratio to a multiple of five times before synergies - "well beyond the tolerable range for the current A3 rating", it said.

"The company's willingness to fund a large acquisition almost entirely with debt is a departure from its historically conservative financial policy that supports the current ratings," S&P said.

However, Campbell is set to prioritize debt reduction over the next couple of years, including suspending its share repurchase program, both ratings agencies said.

Meanwhile, S&P put Hershey's A rating on negative outlook, while Moodys' said it may downgrade the company's A1 rating. Both agencies cited increasing debt leverage of over two times.

US packaged food makers, including Kellogg Co, are buying or investing in healthy food companies to shore up margins that have taken a beating from falling prices and demand for their mass-market brand.

Referenced Symbols: CPB ,

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