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S&P downgrades Conagra Brands on Pinnacle Foods' 'weak' performance

S&P Global Ratings on Jan. 7 downgraded the issuer credit rating of packaged foods company Conagra Brands Inc. to BBB/A-3 from BBB/A-2, citing the "weak" performance of its recently acquired subsidiary, Pinnacle Foods Inc.

Chicago-based Conagra completed its $10.9 billion acquisition of Pinnacle in October 2018.

The rating agency said Pinnacle's poor performance can be attributed to "unsustainable promotions and weak innovation under the prior Pinnacle Foods management team."

S&P said it expects Pinnacle's run rate EBITDA to decline by $75 million to $100 million compared to estimates prior to the acquisition.

The downgrade also applies to Conagra's senior unsecured debt rating, which is now at BBB- from BBB, its subordinated debt rating, now at BB+ from BBB-, and its commercial paper short-term rating to A-3 from A-2.

S&P's outlook on Conagra is stable, reflecting the agency's assumption that there will be no additional negative developments relating to Pinnacle, and that Conagra's legacy business will continue to perform reasonably well, leading to discounted cash flow of at least $550 million annually.

S&P said it could raise Conagra's rating if the company stabilizes and subsequently expands Pinnacle, including the introduction of successful innovation across multiple categories.

The agency said it could lower the rating if Conagra cannot meaningfully improve credit ratios.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found here.