Fitch Affirms Dole's IDR at 'B+' and Withdraws Ratings
CHICAGO -- May 29, 2013
Fitch Ratings has affirmed and withdrawn its 'B+' Issuer Default Ratings
(IDRs) on Dole Food Co., Inc. (Dole; NYSE DOLE) and Dole's wholly-owned
subsidiary Solvest Ltd. Fitch has decided to discontinue the ratings, which
These actions resolve the placement of Dole's ratings on Rating Watch Positive
on Sept. 19, 2012. The Rating Outlook is Stable.
At March 23, 2013, Dole had $1.6 billion of total debt. On April 1, 2013, the
company used proceeds from the sale of its worldwide packaged foods and Asia
fresh produce business to ITOCHU Corp. for $1.685 billion to pay off all of
this debt. This debt included a secured credit facility that Fitch rated
'BB+/RR1', third-lien notes that Fitch rated 'BB/RR2', and senior unsecured
notes that Fitch rated 'B-/RR6'.
Dole also recapitalized its balance sheet with an amended and restated credit
facility dated May 2, 2013. The credit facility includes a $675 million term
loan due April 1, 2020 and a $180 million revolver due April 1, 2018. Fitch
estimates that pro forma total debt is $675 million.
Key Rating Drivers:
Dole's ratings reflect its position as a leading international commodity
produce company and its substantially lower debt level. These positives are
balanced against Dole's volatile operating earnings and cash flow and limited
diversification following the divestiture of its higher margin worldwide
packaged foods business and its Asia fresh operations.
Ratings incorporate Fitch's view that Dole's total debt-to-operating EBITDA
can be maintained in the low 4.0x range or less in most years should the
company maintain its debt balance near pro forma levels. Dole's low relative
margins and periodic generation of negative free cash flow (FCF) are also
factored into the ratings.
Dole's remaining fresh fruit and fresh vegetables operations generate
approximately $4.2 billion of annualized sales. Fitch expects EBITDA margins
to be in the mid-single digit range during normal operating cycles. For 2013,
Dole expects EBITDA to approximate the low end of its $150 million - $170
million guidance range. The estimate reflects an extremely challenging
operating period characterized by competitive banana pricing in North America
and the impact of adverse weather on its strawberry business.
Fitch believes Dole's EBITDA could increase towards $200 million over the
intermediate term, despite the fact that earnings from continuing operations
have been weak for two consecutive years. Drivers to improvement include more
rational banana pricing in North America, balanced banana supply, and reduced
overhead and operational costs as a smaller more streamlined organization.
Dole expects to realize $20 million of sustainable cost savings by the end of
2013 and is developing other initiatives and operational programs to capture
additional future savings.
Dole's cash flow will benefit from lower interest expense following the payoff
of its high coupon debt and its recapitalized balance sheet. The company's new
credit facility is leveraged-based at a range of LIBOR plus 2.50% to 2.75%
with a LIBOR floor of 1% on the term loan. Dole expects capital expenditures
(CAPEX) to approximate $170 million in 2013 as it strategically invests in its
farm assets and expands its port in Ecuador but has indicated that normal
annual CAPEX will be in the $65 million to $70 million range.
Dole should be able to generate modest FCF in most years, given lower on-going
interest expense and lower required CAPEX, even though FCF is likely to be
negative again in 2013. On May 28, Dole announced the acquisition of three new
specialty built refrigerated container ships for its U.S. West Coast
operations for approximately $165 million. The company also indefinitely
suspended its previously announced $200 million share repurchase
authorization. Fitch anticipates that the purchase will be financed with cash
previously earmarked for share repurchases.
Dole is targeting $175 million - $200 million of proceeds from the marketing
of approximately 20,600 acres of non-core Hawaiian land not currently being
farmed. Funds, which will be received over the next few years, are expected to
be reinvested in its business. Following these asset sales, Dole will continue
to maintain a substantial asset base of farm land, manufacturing facilities,
ships, containers, ports, and other buildings.
Credit Statistics, Liquidity and Debt Terms:
Dole indicated that its pro forma net leverage, following the debt reduction
and recapitalization of its balance sheet subsequent to quarter end,
approximates 2.9x. At March 23, 2013, Dole's liquidity consisted of $101.1
million of cash and $176.3 million of availability under its then existing
$350 million revolving ABL facility set to expire July 8, 2016. ABL
availability reflected a borrowing base of $337.5 million, $85.9 million of
letters of credit, and $75.3 million of drawings. Following Dole's
recapitalization, the company's liquidity is supported by a new $180 million
secured revolver divided between domestic and off-shore borrowings that expire
April 1, 2018.
The U.S. loans for Dole's new credit agreement are secured by substantially
all U.S. assets of Dole and its domestic subsidiaries while the offshore loans
are also secured by certain assets of Dole's Bermuda subsidiaries. Financial
maintenance covenants include a maximum consolidated net leverage ratio of
5.0x and a minimum consolidated interest coverage ratio of 2.5x.
Business and Relationship Management: Tiffany Co, Chicago, Tel:
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Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Recovery Ratings and Notching Criteria for Non-financial Corporate Issuers'
(Nov. 13, 2012);
--'Fitch Maintains Rating Watch Positive on Dole's Ratings' (March 18, 2013);
--'Fitch Changes Dole's Rating Watch to Positive on Planned Debt Reduction'
Applicable Criteria and Related Research:
Corporate Rating Methodology
Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers
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Carla Norfleet Taylor, CFA
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
Judi M. Rossetti, CFA, CPA
Michael Simonton, CFA
Brian Bertsch, +1-212-908-0549 (New York)
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