DBRS Rates Dean Foods Co. at BB (high), Dean Holding Co. BB

Dominion Bond Rating Service (“DBRS”) has today assigned a rating of BB (high) to the Senior Secured Debt of Dean Foods Company (“Dean” or the “Company”) and a rating of BB to the Senior Unsecured Debt of Dean’s wholly owned subsidiary, Dean Holding Company. The trends are both Stable.

These ratings reflect the Company’s heavy reliance on the U.S. dairy industry for sales, an industry that is characterized by intense price competition, excess capacity, low profit margins, flat to modest growth, and the amount of debt in the capital structure, which limits the Company’s financial flexibility.

DBRS notes that despite the amount of free cash flow generated by Dean, a deleveraging of the balance sheet has not occurred, as acquisitions and steadily increasing share buybacks have kept debt levels high. Going forward, further acquisitions and share buybacks are anticipated.

Notwithstanding these factors, Dean’s business profile benefits from the fairly constant demand for the Company’s products, which adds stability to its sales and cash flows. DBRS also notes that Dean gains from its position as the largest processor and distributor of fluid milk in the U.S., with an overall market share of approximately 35%. This incumbent position, obtained as a result of the numerous acquisitions undertaken over the years, has also allowed Dean to establish an extensive distribution footprint (150,000 locations served).

In addition, an ongoing rationalization of existing and acquired operations has given the Company the ability to achieve some improvement in profitability to date, with the potential for further improvement.

Note:
This rating is based on public information.