Moody's rates Pinnacle notes Caa1, upgrades term loan to B1

Moody's Investors Service said it assigned a Caa1 (LGD5, 78%) rating to Pinnacle Operating Corp.'s $300 million senior secured second-lien notes due 2020, upgraded its $348 million senior secured first-lien term loan due 2019 to B1 (LGD3, 40%) from B2 (LGD3, 46%) and affirmed the B2 corporate family rating and B2-PD probability of default rating. The outlook is stable.

Proceeds from the proposed second-lien notes will be used to repay the existing $125 million senior secured second-lien term loan due 2019, to repay the outstanding borrowings under the company's ABL revolver and for general corporate purposes.

The upgrade to the first-lien term loan is driven by the increase to structurally subordinated debt in the capital structure, Moody's said.

The agency said Pinnacle's B2 corporate family rating reflects the company's elevated leverage (under 7 times on a Moody's pro forma basis), volatile cash flow metrics, ongoing debt-financed acquisitions and a limited operating track record.

More positively, the agricultural distribution model has historically been a relatively stable business, the agency said, and the bulk of the company was formed from the acquisition of Jimmy Sanders, Inc., whose steady operations have benefited from favorable industry dynamics.

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