CSM Bakery taps Rhone Group loan; debt downgraded

Dwindling profits from Rhône Group portfolio company CSM Bakery Solutions and costs tied to implementing its internal business software prompted a debt downgrade from S&P Global Ratings.

“Our downgrade reflects the company’s constrained liquidity position from continued weakened profitability due to elevated costs and inventory mismanagement from the rollout of enterprise software in North America,” analysts at S&P said.

S&P Global Ratings cut its corporate credit rating on CSM Bakery to CCC+ from B, with a negative outlook. The CCC+ rating means the company is currently vulnerable and depends on favorable business, financial and economic conditions to meet financial commitments, S&P definitions say.

The company, which is carrying $1 billion in funded debt for the 12 months ended Oct. 1, can’t absorb a “a high-impact, low-probability event without the need for refinancing,” S&P Global Ratings said.

Acquired in 2013 for about $1.3 billion in a carve-out deal from food group CSM, CSM Bakery entered a term-loan agreement with Rhône Group at an annual rate of 15 percent to improve its liquidity, S&P said in a Nov. 22 note.

The Sandy Springs, Georgia, company produces baked goods and provides bakery supplies to customers worldwide.

As of Oct. 18, CSM Bakery borrowed about $31 million of about $62 million available, for working-capital purposes.

S&P Global Ratings analysts said the term loan was used to prevent the company from triggering a covenant on its $150 million asset-based loan facility.

A spokeswoman for Rhône Group declined to comment.

S&P Global Ratings said CSM Bakery’s profitability through the third quarter was below expectations.

S&P expects flat growth in 2017 as the company focuses on a core collection of products, regains lost market share and operates under a new organizational structure. The company rang up about $3.2 billion in sales in the year ended Oct. 30.

S&P Global Ratings lowered its view on the company’s $850 million first-lien term loan due 2020 as well as its $210 million senior secured second-lien term loan due in 2021.

The company’s issues with the rollout of its business software bottomed out in Q3, S&P said. As of Oct. 1,  the company had incurred about $77 million of business-disruption costs related to it.

Excluding these charges, EBITDA has fallen by 50 percent from the year-earlier period due to lost business from the software rollout, higher inventory levels, and higher warehouse and distribution costs, S&P said.

In September, CSM Bakery Solutions named Marianne Kirkegaard president and chief executive. She had been senior vice president of markets and chief commercial officer. She succeeded Robert Sharpe, who was leaving to pursue other opportunities, the company said.

A worker makes traditional cookies in a homemade-cookies factory ahead of the Muslim Eid al-Fitr festival in Jakarta on Aug. 23, 2011. Photo courtesy Reuters/Enny Nuraheni