S&P: Amplify Snack Brands Inc. Assigned 'B' Rating; Outlook Stable; New Debt Rated 'B' (Recovery Rating '3')
At the same time, we assigned our 'B' issue-level rating and '3' recovery rating to the company's proposed $50 million revolving credit facility due 2021 and $600 million first-lien term loan due 2023. The '3' recovery rating indicates our expectation for meaningful (50% to 70%; lower end) recovery in the event of a payment default.
The company expects to use proceeds from the debt offering to fund the approximate $393 million acquisition of Tyrrells, refinance $205 million in debt, and pay estimated fees and expenses.
Pro forma for this offering, we estimate the company will have roughly $612 million in adjusted debt outstanding.
All ratings are based on preliminary terms and are subject to review upon receipt of final documentation.
"The ratings on Amplify reflect its high leverage (about 5.8x pro-forma for the acquisition of Tyrrells), narrow product focus (albeit in the faster growing better for you snack category), smaller scale relative to larger packaged food peers, and good brand recognition and loyalty associated with SkinnyPop," said S&P Global Ratings credit analyst Amanda Cusumano.
The acquisition of Tyrrells will add to the company's scale and geographic reach and further diversify its product mix by adding potato chip and veggie chip product offerings, which are currently sold in over 40 countries. Amplify holds the no. 2 position in the ready-to-eat popcorn category with its brand SkinnyPop, which accounts for majority of the company's sales and earnings. The company acquired Paqui tortilla chips and Boundless Nutrition (Oatmega protein bars) in April 2015 and 2016, respectively to diversify its brand and product concentration with SkinnyPop.
The acquisition of Tyrrells represents Amplify's first sizeable transaction, as Tyrrells is expected to generate over $100 million in sales. We believe that risk is higher with Tyrrells because it is a U. K.-based company with international sales and minimal U. S. presence, the opposite of Amplify's brands which are sold only in North America. Additionally, the company has its own manufacturing facilities, whereas Amplify currently uses co-manufacturers to produce its products. Amplify intends to leverage Tyrrells' international manufacturing footprint by expanding its popcorn capabilities and capacity into Tyrrells' five existing manufacturing facilities. This will allow Amplify to sell SkinnyPop into the U. K. and Europe, mainly France and Germany. The Tyrrells management team will be kept in place to assist with running the facilities and sharing knowledge on the countries in which Tyrrells operates.
The stable outlook reflects our expectation for strong revenue growth to continue while EBITDA margins remain above 25%. We expect pro forma leverage (end of June 2016) of about 5.8x, and be managed above 5x as the company continues to make tuck-in acquisitions to diversify its portfolio of products.
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