Moody’s Investors Service downgraded J.M. Smucker by two notches to Baa2 on March 10, 2015, on expectations that the company’s debt-financed acquisition of Big Heart Pet Brands will increase leverage. J.M. Smucker agreed to buy Big Heart Pet Brands for US$3.2 billion in February.
J.M. Smucker is expected to come to the bond market soon, as it has mandated banks to arrange US fixed income investor calls. Moody’s says J.M. Smucker’s leverage will rise to 4x earnings after the deal closes from 2.3x now.
J.M. Smucker’s acquisition of Big Heart Pet Brands will be funded through a US$1.75 billion five-year bank term loan, and the bonds are expected to refinance a US$3.75 billion bridge loan, according to a report.
"Other key considerations include the recent high earnings volatility in the company's coffee business and significant integration and execution risks related to its entree into the attractive, but highly competitive, pet food industry where Big Heart competes against larger companies and stronger brands in mainstream and specialty pet foods," Moody's said.
Pet owners want a lot from their pet food brands. They want primary proteins that suit what they believe is best for their animal. They want grains or they don't. They want something customized, but it has to be easy to understand.
Constraints and crises, like those experienced in 2020, help drive innovation and sustainability offers context.