Food processing appears little in Moody's Bottom Rung

by Josh Sosland
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NEW YORK — While the number of U.S. companies facing a high risk of credit default is rising rapidly, food processors appear largely to be sidestepping the difficulties.

Moody’s Investors Service attracted considerable media attention March 10 when it issued The Bottom Rung, a new data base and quarterly publication listing and analyzing trends among U.S. companies with high default risk and weak liquidity.

While 283 companies (excluding financial companies) were listed by Moody’s as "qualifying" for the bottom rung, only two were packaged foods companies — Dole Food Co. (placed by Moody’s in the Natural Food Processor category) and Best Brands, part of Value Creation Partners (in the Moody’s Consumer Products: Packaged Foods group). Several restaurant companies were included.

Companies on the Bottom Rung carry a credit rating of Caa1 or lower, a B3 rating with a negative rating outlook or a B3 with rating under review for downgrade.

"These companies have not defaulted, but their current ratings indicate elevated risk of default relative to other rated corporate issuers," Moody’s said.

Best Brands offers a range premium baked foods, including cakes, muffins, croissants, Danish, cookie dough, puff pastry, donuts and bread. The Minneapolis-based company was established in 1971 as a bakery distributor and expanded in 2005 with the acquisition of the International Multifoods Corp. bakery products listing. Telco Food Products, a baker of brownies, was acquired in 2007. Value Creation Partners is based in Beachwood, Ohio.

Privately-owned Dole Food Co., based in Westlake, Calif., is the largest producer and marketer of fresh fruit and vegetables.

The ranks of Bottom Rung companies are swelling the agency said.

"There are now nearly twice as many companies on the Bottom Rung list as there would have been a year ago," Moody’s said.

The relative absence of food companies on the list stands in marked contrast to the large and diverse number of sectors with several companies in danger of default — Media, automotive, retail, manufacturing, gaming, consumer products (non-food), energy, services, transportation, technology, restaurants, telecommunications, construction and engineering services, health care, aircraft and aerospace, forest products, natural products processor

Among better known companies placed on the list by Moody’s during the past quarter were Eastman Kodak Co., MGM Mirage and Cooper Tire & Rubber Co. No food companies were added during the last quarter.

Restaurant companies on the list included Arby’s Restaurant Group, Inc.; Center Cut Hospitality, Inc.; El Pollo Loco, Inc.; Krispy Kreme Doughnut Corp.; OSI Restaurant Partners, Inc.; Perkins & Marie Calendar’s Inc.; Rare Restaurant Group, L.L.C.; Real Mex Restaurants, Inc. and Sbarro, Inc.

Moody’s is forecasting that the 12-month trailing default rate for all U.S. speculative–grate issuers will hit 14.5% in November, versus an actual default rate of 4.4% at the end of 2008.

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