OREANDA-NEWS. More-->S&P Global Ratings today assigned its 'A' issue-level rating to Hershey, Pa.-based The Hershey Co.'s proposed senior unsecured notes due 2026 and 2046, the final issue amounts and coupons of which to be determined. The notes will be subject to a change of control contingency that requires Hershey to repurchase the bonds at 101% of par value in the event of a change of control. We expect the company to use the net proceeds for debt repayment and to fund a modest upcoming acquisition of Ripple Brands Collective LLC. As of July 3, 2016, the company had approximately $3 billion in reported debt outstanding.

Hershey benefits from a strong market position, well-known brands in the U. S. chocolate and confectionary market, and above-average EBITDA margins, despite having regional and product concentration. We expect Hershey will use more than $700 million of free operating cash flow primarily to fund its annual dividend of more than $400 million and the balance for share repurchases and/or bolt-on acquisitions. In addition, the company has fairly conservative financial policies and consistently maintains debt to EBITDA near 1.5x., while periodically operating above this target depending on the timing of share repurchases and any bolt-on acquisitions.

We do not believe the recent changes taking place at the Hershey Trust, which has an 80% controlling interest in The Hershey Co. and currently has three Trust members serving on The Hershey Co.'s board of directors, will have a material impact on the company's current financial policies. Also, our base-case scenario projections continue to reflect our key macroeconomic and operating assumptions for Hershey on a stand-alone basis and do not assume any acquisition bid by other entities.

For our most recent rating rationale, please refer to our summary analysis on Hershey published on RatingsDirect on July 29, 2016.