Investing.com -- Del Monte Foods Inc. has been downgraded to ’D’ from ’ CCC (WA: CCCP )’ by S&P Global Ratings following the company’s Chapter 11 bankruptcy filing.
The food producer has entered into a restructuring support agreement with most of its creditors, which includes plans to convert approximately $1.3 billion of existing debt into equity upon emergence from bankruptcy.
As part of the agreement, Del Monte intends to undertake a sale process for substantially all of its assets. The company has filed motions to ensure business continuity under Chapter 11, particularly important as it navigates through its peak pack season, which typically runs from June through October.
Del Monte plans to finance its operations throughout the bankruptcy proceedings using current cash reserves plus a $912.5 million debtor-in-possession facility. This facility includes $165 million of new money from existing lenders, subject to bankruptcy court approval.
The bankruptcy filing comes after persistent weak operating performance, with declines in both revenues and EBITDA. The company has faced lower demand for its products due to consumer pullback, trade down to private-label offerings, and a shift toward healthier alternatives. Del Monte also incurred higher costs related to excess inventory after demand fell following a boost during the COVID-19 pandemic.
Multiple tariffs on steel and aluminum imports to the U.S. increased the company’s costs for cans used in packaging its shelf-stable products. Despite implementing turnaround initiatives including increased promotional spending, cost cuts, and facility closures to reduce its manufacturing footprint, these efforts were insufficient to materially improve performance.
The company’s highly leveraged capital structure and high debt costs hampered its ability to generate positive free operating cash flow. Del Monte completed a debt restructuring last year that provided additional liquidity to fund its 2024 pack season. Earlier this year, the company issued an incremental term loan to repay its $102.2 million residual term loan and pay associated fees and expenses, which increased its interest expense by about $4 million annually.
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