Fitch: Heinz's Ratings Unaffected by Change in Buyout Funding; Outlook Stable

  Fitch: Heinz's Ratings Unaffected by Change in Buyout Funding; Outlook
  Stable

Business Wire

CHICAGO -- March 22, 2013

The ratings of H.J. Heinz Company (Heinz), Hawk Acquisition Holding Corp.
(Hawk), and subsidiaries are unaffected by the change in mix of debt to be
incurred to fund the buyout of Heinz by Berkshire Hathaway, Inc. (Berkshire)
and 3G Partners Ltd. (3G), according to Fitch Ratings.

The issuance of 7.5-year 2nd lien notes has been upsized to $3.1 billion from
$2.1 billion and all term loans will now be dollar-based. Additionally,
following the successful completion of the consent solicitation for Heinz's
existing $931 million of 2039 unsecured notes, the amount of new term loans is
expected to be reduced by a corresponding amount.

Based on Fitch's expectation that the transaction will close in the third
calendar quarter of 2013, subject to shareholder and regulatory approval,
ratings remain as follows:

Hawk Acquisition Holding Corp. (Parent)

--Long-term Issuer Default Rating (IDR) 'BB-'.

Hawk Acquisition Sub., Inc. (to be merged into H.J. Heinz Co. at closing);

--Secured credit facility at 'BB+';

--4.25% 2nd lien notes due 2020 at 'BB'.

H.J. Heinz Co.

--Long-term IDR at 'BB-';

--Bank facilities at 'BB+';

--6.375% senior unsecured notes due 2028 at 'BB-' (co-issued);

--Short-term IDR at 'B';

--Commercial paper (CP) at 'B'.

H.J. Heinz Finance Co.

--Long-term IDR at 'BB-';

--Bank facilities at 'BB+' (co-borrower);

--6.375% senior unsecured notes due 2028 at 'BB-' (co-issued);

--6.75% senior unsecured notes due 2032 at 'BB-';

--7.125% senior unsecured notes due 2039 at 'BB-';

--Short-term IDR at 'B';

--CP at 'B';

--Series B preferred stock at 'BB-'.

H.J. Heinz Finance UK Plc.

--Long-term IDR at 'BB-';

--6.25% senior unsecured notes due 2030 at 'BB-'.

Fitch expects to withdraw the following ratings upon closing of the
transaction:

H.J. Heinz Co.

--Bank facilities 'BB+';

--Short-term IDR 'B'.

--CP 'B'.

H.J. Heinz Finance Co.

--Bank facilities 'BB+' (as co-borrower).

--CP 'B';

--Series B preferred stock 'BB-'.

The Rating Outlook is Stable.

Fitch anticipates that debt financing for the buyout will now include
approximately $9.5 billion of first-priority U.S. term loans due 2019 and
2020, a $2 billion first-priority revolver (to be undrawn at time of closing),
and $3.1 billion of second-lien notes due 2020. Equity financing remains
unchanged with Berkshire investing $12.12 billion of equity, inclusive of $8
billion of preferred equity with warrants, and 3G investing $4.12 billion of
common equity.

Existing debt that will not be refinanced as part of this transaction (roll
over notes) includes: $231 million of 6.375% notes due 2028, $202 million of
6.25% notes due 2030, $435 million of 6.75% notes due 2032, and $931 million
of 7.125% notes due 2039. As indicated in Heinz's 8K SEC filing on March 13,
2013, the size of the term loan is being reduced due to the rollover of the
2039 notes. Should any of the rollover notes require equal and ratable
security due to the issuance of the secured debt discussed above, Fitch could
upgrade the rating on the notes accordingly.

The transaction is valued at $28 billion, including the assumption of $5.3
billion of debt with hedge accounting adjustments at Jan. 27, 2013, and
represents roughly 13.0x Heinz's latest 12 months (LTM) EBITDA of $2.2
billion. The financing terms and expected capital structure have been
reviewed.

KEY RATING DRIVERS:

The rating actions balance Heinz's highly leveraged capital structure post
buyout with its low business risk, above-average revenue growth, potentially
higher operating income as a private firm, and consistent cash flow
generation. 3G has proven its ability to increase operating profitability and
de-lever acquired firms. Anheuser Busch InBev NV/SA and Burger King Worldwide,
Inc. both experienced significant margin expansion and steady deleveraging
after being acquired by 3G.

Fitch expects Heinz's operating EBITDA growth to exceed the firm's 4%-6%
historical average under its new ownership structure due to the combination of
mid-single digit organic revenue growth and cost reductions. Fitch also
believes Heinz is capable of generating average annual free cash flow (FCF) of
more than $200 million over the two years following the buyout, despite a
substantial increase in interest expense and $720 million of annual preferred
dividends. Annual operating cash flow and FCF averaged $1.2 billion and over
$425 million, respectively over the past 10 years.

Heinz's low business risk and the stability of its operations have been
demonstrated over time as the firm's revenue and operating earnings held up
well during the recent global economic slowdown. Even with an approximate 30%
exposure to pressured European consumers, the firm has continued to take
pricing and grow volumes. Fitch expects that growth in emerging markets will
continue to outpace that of developed markets with opportunities to further
expand Heinz's core portfolio of meals/snacks, ketchup/sauces, and infant
nutrition around the globe in both retail and foodservice.

Integrated into the ratings is Fitch's treatment of the $8 billion 9%
cumulative perpetual preferred stock (preferred)to be held by Berkshire. Fitch
has classified 50% of the principal as equity and 50% as debt. The terms of
the preferred allow for dividend deferral and provide incentives to issue
common equity, which reduces the company's overall financial risk.

Pro forma total debt adjusted for the equity treatment of these hybrid
securities will approximate $18 billion. Total debt with equity
credit-to-operating EBITDA will exceed 7.5x, up from roughly $5 billion and
2.4x, respectively for the LTM period ended Jan. 27, 2013, and will be
slightly higher than Fitch had originally estimated. The upsize of the second
lien notes increases the company initial leverage and provides for additional
liquidity which may lessens the need in the near term to repatriate overseas
cash. Nonetheless, Fitch anticipates that total debt with equity
credit-to-operating EBITDA can decline to below 6.0x within two to three years
of the buyout based on significant anticipated operating earnings growth and
modest debt reduction.

The ratings also incorporate Heinz's product and geographic diversification
and leading market share positions in major product categories. Ketchup and
sauces represented 45% of fiscal 2012 sales while meals and snacks represented
38%, infant nutrition represented 11%, and other products represented the
remaining 6%. Heinz generates about two-thirds of its sales outside the U.S.,
with emerging markets representing nearly 25% of the firm's $11.6 billion of
revenue.

For the nine months ended Jan. 27, 2013, organic revenue growth was 3.7% due
to 2.1% pricing and 1.6% volume growth. Volume gains in emerging markets were
partially offset by declines in Continental Europe, Australia, and Italy while
pricing increased across developing markets as well as in Continental Europe
and U.S. food service. Reported operating income increased 9.4% to $1.28
billion for the nine-month period due to benefits of higher pricing, volume,
and productivity initiatives.

Liquidity, Maturities, Covenants, and Collateral:

Heinz has historically maintained high levels of liquidity with year-end cash
averaging over $1 billion since 2011. Liquidity and on-going financial
flexibility is expected to remain adequate despite considerable debt levels
following the buyout. Heinz will maintain a $2 billion five-year revolver and
is expected to continue to hold high cash balances as cash flow generation
remains robust. Fitch views the ability to defer $720 million preferred
dividend as being a potential lever equity partners could pull should there be
an unanticipated deterioration in cash flow and/or liquidity constraints.
Berkshire's 50% common equity stake supports this view.

Solid FCF generation will be enabled by EBITDA growth and the potential for
additional working capital improvement. The $720 preferred dividend is a
moderately incremental replacement to the $650 million of common dividends
distributed by Heinz prior to the buyout. Capital expenditures should also
decline modestly as spending behind Heinz's Project Keystone, a multi-year
program to drive productivity and standardize systems, comes to an end.

Maturities will be limited in the intermediate term, eliminating refinancing
risk should market conditions worsen. Rollover notes are long dated and debt
incurred for the buyout has maturities five to seven years out. Term loan
amortization will be manageable and financial covenants are expected to be
minimal.

In terms of collateral, the first-priority debt will be secured by a perfected
first-priority security interest in substantially all tangible and intangible
property with carve-outs that include Principal Property as defined by
indentures governing rollover notes. Based on Fitch's interpretation this
includes the gross book value of certain manufacturing, processing plant or
warehouses located in the U.S. Fitch views the value of the collateral as
meaningful as it is substantially based on the value of Heinz's trademarks;
which include namesake Heinz, Ore-Ida, and Smart Ones. Collateral for
junior-lien debt will include a second-priority security interest in assets
securing the first-priority debt.

RATING SENSITIVITIES:

An upgrade of Heinz's ratings is not anticipated in the near term. However,
faster than expected deleveraging, accelerated top line growth, and greater
than projected cost reductions would be viewed positively making upward
migration in ratings possible. A commitment to operating with total debt with
equity credit-to-operating EBITDA below 5.0x and continued generations of
meaningful FCF would also be a prerequisite for any upgrades.

Further downgrades could occur if deleveraging is slower than Fitch expected
or total debt with equity credit-to-operating EBITDA is maintained in the 7.0x
range. Failure to achieve cost reduction targets, weakening organic growth or
margin contraction, or increased debt levels could trigger adverse rating
actions. The inability to generate FCF or a sustained loss of market share in
core product categories would also be viewed negatively.

Additional Information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 8, 2012);

--'Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit
Analysis' (Dec. 13, 2012);

--'Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers'
(Nov. 12, 2012);

--'Fitch Downgrades Heinz to 'BB-' & Rates Proposed Debt; Outlook Stable'
(Mar. 12, 2013)

--'Fitch Downgrades Heinz to 'BB+' on Buyout Announcement; Places Ratings on
Negative Watch' (Feb. 15, 2013).

Applicable Criteria and Related Research

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit
Analysis

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696670

Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=693773

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Contact:

Fitch Ratings
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Director
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or
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