ConAgra Foods Inc.’s sale of its trade and merchandising business to an investor group led by Ospraie Advisors LP (GM March 31, p. 1) is expected to close very soon. In the meantime the new unit, to be called Gavilon Group LLC, has already been racking up good reviews from Wall Street. Both Standard & Poor’s Ratings Services and Moody’s Investor Services are out with positive ratings for the new entity.
Gavilon will include ConAgra’s fertilizer trading business, which is based in Savannah. The fertilizer business has been a big money maker for ConAgra, particularly in the past few years. Other businesses included are grain, agricultural by-products, and energy.
S&P noted the company’s moderate hedging policies, solid cash flow from operations, strategically-located physical assets, experienced management team, and favorable near-term industry fundamentals. It said these would help mitigate inherent volatility in the agriculture and energy sectors.
S&P sees a stable outlook for Gavilon, expecting it will maintain its market position and continue to pursue a growth strategy while maintaining credit measures at or near current levels. Gavilon, which will continue to be based in Omaha, Neb., is expected to have $1.1 billion in total debt, according to S&P. S&P estimated the Gavilon purchase price as $2.8 billion, saying this includes book value plus $600 million, subject to working capital and other adjustments at closing.
S&P is giving Gavilon a “BB” corporate credit rating, and a “BBB” rating for its proposed $1.75 billion senior secured asset-based revolving credit facility (ABL). S&P said the latter is two notches above the corporate rating. S&P gave the company a “1” rating relating to the debt, saying this indicates expectations of a high rate of principal (90-100 percent) in case of default.
In the meantime, Moody’s Investors Service has reportedly assigned a “Ba3” corporate family rating to Gavilon, as well as a “Ba1” rating to the ABL. Moody’s said the outlook is stable.