Fitch Ratings has affirmed the following ratings of Dole Food Company, Inc. (DOLE; NYSE: DOLE) and its wholly owned subsidiary Solvest, Ltd.:
Dole (Operating Company)
--Long-term Issuer Default Rating (IDR) at 'B';
--$350 million asset-based loan (ABL) revolver at 'BB/RR1';
--$239 million secured term loan B at 'BB/RR1'.
Solvest Ltd. (Bermuda-based Subsidiary)
--Long-term IDR at 'B';
--$593 million secured term loan C at 'BB/RR1'.
Due to Fitch's recovery analysis and the continued absence of financial stress, primarily resulting from debt reduction, the following ratings have been upgraded:
Dole (Operating Company)
--$227 million 13.875% third-lien secured notes to 'BB-/RR2' from 'B+/RR3';
--$315 million 8% third-lien secured notes to 'BB-/RR2' from 'B+/RR3';
--$155 million 8.75% senior unsecured notes to 'B-/RR5' from 'CCC/RR6'.
The Rating Outlook has been revised to Positive from Stable.
At Oct. 9, 2010, Dole had $1.6 billion of total debt including capital leases.
Rating Rationale:
Dole's ratings reflect its relatively high financial leverage, mid-single digit margins and the inherent volatility of the fresh produce industry. These factors are balanced by the company's adequate liquidity, limited near-term maturities, manageable debt amortization schedule and leading worldwide position in the fresh produce and value-added packaged fruits and vegetables business.
For the latest 12 month (LTM) period ended Oct. 9, 2010, total debt-to-operating EBITDA was 4.5 times (x), operating EBITDA-to-gross interest expense was 2.1x and funds from operations (FFO) fixed charge coverage was 1.4x. Dole's EBITDA margin for the LTM period was 5.3% and its free cash flow (FCF; defined as cash flow from operations less capital expenditures and dividends) was $64 million. Dole's LTM credit statistics are currently in line with Fitch's expectations.
Dole's liquidity at Oct. 9, 2010 includes $201 million of cash and $138 million of availability under its ABL revolver which matures on March 2, 2014. Dole is currently in compliance with covenants under its credit agreements. The company's leverage, as defined by its term loan credit agreement, was 3.6x at Oct. 9, 2010. The maximum leverage ratio allowed is 4.75x until June 18, 2011 when the covenant steps down to 4.5x. Fitch estimates that Dole currently has in excess of 20% cushion under this covenant.
Dole's nearest upcoming maturity is on July 15, 2013 when the company's 8.75% unsecured notes become due. As previously mentioned, the company's ABL expires March 2, 2014 while its 13.875% and 8% junior lien notes are due March 15, 2014 and Sept. 21, 2016, respectively. Dole's term loans mature on March 3, 2017. Quarterly term loan amortization requirements are manageable at $2.1 million or $8.5 million annually.
Positive Outlook and Rating Triggers:
The Positive Outlook is due to Fitch's expectation that total debt-to-operating EBITDA will migrate towards 4.0x in 2011 due to modest debt reduction and stable to moderately higher EBITDA margins. Lower earnings in Dole's European banana business caused margins to decline during the year-to-date period ended Oct. 9, 2010. However, Fitch believes European banana pricing could improve in 2011 as supply conditions normalize. Furthermore, the restructuring of Dole's European business is well underway and could also help improve profitability.
Leverage in the low 4.0x range along with continued FCF generation is likely to result in an upgrade of Dole's ratings. Fitch is currently projecting FCF of roughly $50 million in 2011. Dole has publicly articulated a goal of net leverage in the 2.0x range driven by operating earnings growth and non-core asset sales.
Dole's term loan credit facility requires that 50% of excess cash flow, as defined by the agreement, be used to repay the loans. Both bank facilities mandate that asset sale proceeds be used for debt repayment. Dole is targeting $50 million of assets sales in both 2010 and 2011.
Recovery Ratings:
The 'RR1' rating on Dole's secured bank facilities indicates that Fitch views recovery prospects on these obligations as outstanding at 91% - 100%. The company's ABL has a first-priority lien on account receivables and inventory and a second-priority lien on real estate and intangible property. Dole's term loans are secured on a first priority basis by real and intangible property and on a second priority basis by ABL collateral.
The upgrade of Dole's third-lien secured and senior unsecured notes is due to Fitch's recovery assumptions that trade payables related obligations would not be included in claims if there was a restructuring event and, as previously mentioned, the alleviation of financial stress on the company. The 'BB-/RR2' rating on Dole's third-lien notes reflects Fitch's view that recovery prospects on these notes would be superior at 71% - 90% if there was a distressed situation. Meanwhile, the 'B-/RR5' rating on the company's senior unsecured notes assumes below average recovery. Fitch views terms, as outlined by the July 15, 1993 indenture covering these notes, as offering bondholders minimal credit protection.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 16, 2010).
--'High Yield Food, Beverage and Restaurants: Cross-Company Liquidity, Debt and Covenant Analysis' (July 26, 2010).
--'Dole Food Company, Inc.' (May 28, 2010).
Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646
High Yield Food, Beverage, and Restaurants: Cross-Company Liquidity, Debt and Covenant Analysis
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=540829
Dole Food Company, Inc.
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=528105
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Contacts:
Fitch Ratings
Primary Analyst
Carla Norfleet Taylor, CFA,
+1-312-368-3195
Director
Fitch, Inc.
70 W. Madison St.
Chicago,
IL 60602
or
Secondary Analyst
Judi M. Rossetti, CFA, CPA,
+1-312-368-2077
Senior Director
or
Committee Chairperson
Wesley
E. Moultrie, II, CPA, +1-312-368-3186
Managing Director
or
Media
Relations, New York
Cindy Stoller, +1-212-908-0526
cindy.stoller@fitchratings.com