S&P: CTI Foods Holding Co. LLC Corporate Credit Rating Lowered To 'CCC+' From 'B-' On Weak Cash Flow; Outlook Negative

S&P Global Ratings today lowered its corporate credit rating on Idaho-based CTI Foods Holding Co. LLC (CTI) to 'CCC+' from 'B-'. The outlook is negative.

We also lowered the issue-level ratings on the company's first-lien term loan due 2020 to 'CCC+' from 'B-' and its second-lien term loan due 2021 to 'CCC-' from 'CCC'. We are maintaining the '3' and '6' recovery ratings on the first-lien and second-lien term loans respectively.

The downgrade reflects continued underperformance in 2017, with the expectation that the company's cash flows will remain negligible while S&P Global Ratings adjusted financial leverage will remain well above 10x in 2018. That could complicate the refinancing of CTI's capital structure as it begins to come current in April 2019.

The negative outlook reflects the risk that the company is unable to improve operating performance, resulting in continued pressure on FOCF and its ability to successfully secure a refinancing of its ABL and first-lien term loan, which begin to come current in April 2019 and June 2019 respectively.

We could lower the rating if it becomes apparent the company will face a default, most likely the result of an inability to refinance its ABL and first-lien term loan prior to coming current in 2019, which would result in a near term liquidity crisis.

We could take a positive rating action if the company were to increase and sustain EBITDA interest coverage to above 1.5x while generating at least $10 million of sustainable FOCF. This could occur if it successfully expanded gross margins by roughly 200 bps while growing revenues 1.5% in 2018.
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