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S&P downgrades Kraft Heinz over aggressive financial policy

S&P Global Ratings on Feb. 14 downgraded The Kraft Heinz Co.'s issuer credit rating to BB+ from BBB-, citing the U.S.-based condiments-maker's more aggressive financial policy.

The rating agency said Kraft Heinz has implemented a more aggressive financial policy as it manages its declining profitability and cash flow generation. Kraft Heinz's recent financial policy decisions and statements regarding maintaining price discipline on potential asset sales also reflect its lack of commitment to take steps that will reduce leverage over the next 12 months.

Ratings also downgraded Kraft Heinz's short-term commercial paper rating to B from A-3 and issue-level ratings on the group's senior unsecured debt to BB+, with a recovery rating of 3.

The outlook on the group is negative to reflect the potential for a lower rating if Kraft Heinz's management is unable to stabilize and turnaround the business. The agency added that any upside over the near term from potential large asset sales is limited as it would likely take time to negotiate and complete.

Ratings said it could downgrade Kraft Heinz further if the company's turnaround plan fails to curb further EBITDA and free operating cash flow declines, or if large asset sales result in a less competitive position.

The agency said it could raise the ratings to BBB- if the group's turnaround plan is able to restore enterprise value, improve key brands, and significantly improve adjusted EBITDA and free operating cash flow generation. However, Ratings said an upgrade is unlikely over the next 12 months.

Ratings said it could also revise its outlook on the company to stable from negative if the management's turnaround efforts show sustained traction through fiscal 2020.

Earlier, Fitch Ratings also downgraded Kraft Heinz to BB+ from BBB- to reflect its view that the company's EBITDA decline will continue in 2020.

The company is forecasting a $460 million decline in adjusted EBITDA in 2020 and a decrease of 38 cents in adjusted EPS from 2019.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.