|[December 17, 2013]
Fitch: No Immediate Rating Action for ConAgra from California Lead Paint Ruling
CHICAGO --(Business Wire)--
According to Fitch Ratings, there is no immediate change to ConAgra
Foods, Inc.'s (ConAgra) ratings following the Superior Court of
California's Dec. 16, 2013 proposed statement of decision in a lead
paint case against ConAgra Grocery Products Company (ConAgra Grocery), a
wholly owned subsidiary of ConAgra.
The proposed decision orders the creation of a $1.1 billion California
abatement fund to replace or contain lead paint in homes. The liability
is joint and several against Sherwin-Williams Co. ('A-'/Stable), NL
Industries and ConAgra Grocery. ConAgra's proportional share is
currently unknown. Fitch will monitor future rulings and take
appropriate rating actions if it becomes clear that any future payout
would have a material adverse effect on the company's leverage,
financial condition, results of operations or liquidity.
ConAgra has never manufactured or sold paint. ConAgra Grocery was
included in the case due to its linkage to a former subsidiary of
Beatrice Company that manufactured lead paint until the 1950s. That
paint company was dissolved in 1968, 45 years ago and 22 years prior to
ConAgra's acquisition of Beatrice. ConAgra does not believe it inherited
any liabilities of the dissolved entity.
ConAgra plans to appeal this decision and vigorously defend itself in
this case and any lead paint related litigation. Several states have
rendered favorable decisions in other lead paint related litigation. The
appeals process is likely to be lengthy and last several years. ConAgra
does not believe an appeal bond is legally required in this case.
However, if necessary Fitch believes ConAgra can post an appeal bond
without putting strain on its current ratings.
The ratings factor in ConAgra's commitment to prioritize its free cash
flow (FCF) to repay a total of $1.5 billion of debt through fiscal 2015.
The ratings and Stable Outlook also factor in progress toward ConAgra's
anticipated improvement in Consumer Foods' operating performance in the
second half of fiscal 2014.
ConAgra maintains adequate liquidity, including an undrawn $1.5 billion
revolving credit facility (RCF) that provides backupto its commercial
paper (CP) program. The company had $280 million CP outstanding and $194
million cash at Aug. 25, 2013. Subsequent to the end of the quarter,
ConAgra extended its RCF by two years to Sept. 14, 2018. At Aug. 25
2013, ConAgra had $900 million outstanding on its term loan which
matures Jan. 29, 2018. The company intends to pay off the balance by the
end of fiscal 2015 and currently does not have amortization payments due
to prepayments completed.
ConAgra would be in default under its credit agreements if it incurs
final judgments, after all appeals have been exhausted, in excess of $35
million (excluding amounts covered by insurance and coverage has not
been denied) outstanding for more than 30 days from its date of entry
and not discharged in full or stayed. The credit facilities have a 75%
maximum debt-to-capital covenant for four quarters beginning Jan. 29,
2013, declining to 65% over time. ConAgra plans to refinance its $500
million 5.875% notes due in April 2014. Additional maturities include
$250 million 1.35% notes due in September 2015.
ConAgra's and its subsidiary, Ralcorp Holdings, Inc.'s (Ralcorp) ratings
are as follows:
ConAgra Foods, Inc.
--Long-term Issuer Default Rating (IDR) at 'BBB-';
--Senior unsecured notes at 'BBB-';
--Bank credit facility at 'BBB-';
--Subordinated notes at 'BB+';
--Short-term IDR at 'F3';
--Commercial paper at 'F3'.
Ralcorp Holdings, Inc.
--Long-term IDR at 'BBB-';
--Senior unsecured notes at 'BBB-'.
The Rating Outlook is Stable.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 2013).
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and Parent
and Subsidiary Linkage
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