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US FOODSERVICE: S&P Junks Rating on $1 Billion Senior Toggle Notes

Troubled Company Reporter, June 22, 2007

Standard & Poor's Ratings Services assigned its 'B-' corporate credit rating to Columbia, Maryland-based U.S. Foodservice.  In addition, Standard & Poor's assigned its 'CCC' rating to USF's proposed $1 billion senior unsecured toggle notes due 2015 and proposed $550 million of subordinated debt due 2017.

The outlook is positive.
"The ratings on USF reflect its highly leveraged financial profile, thin operating margins, and participation in the highly competitive U.S. foodservice distribution industry, which more than outweigh favorable industry growth trends," said Standard & Poor's credit analyst Jean Stout.
Net proceeds from the company's senior unsecured and subordinated debt offerings, together with proceeds from its proposed $1.565 billion term loan, approximately $560 million of borrowings under its asset-based revolving credit facility, $600 million under its accounts receivable securitization program, $735 million under its collateralized mortgage-backed facility, and about $2.25 billion of equity, will be used to finance the acquisition of USF by Clayton, Dubilier & Rice Inc. and Kohlberg Kravis Roberts, for a transaction value of about $7.3 billion.  The $1.3 billion asset-based revolving credit facility, $100 million revolving credit facility, $1.565 billion term loan, and a $500 million synthetic letter of credit facility, as well as the $700 million
accounts receivable securitization program and $735 million collateralized mortgage-backed facility, are not rated.
Pro forma for the transaction, USF will have approximately $5.1 billion of debt outstanding, including structured financings.
USF, through its operating subsidiary U.S. FoodService Inc, is the second largest foodservice distributor in the U.S.

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