S&P revises Five Star outlook to negative

S&P said it revised its outlook for Five Star Intermediate Holding LLC to negative from stable and affirmed all its ratings, including the B issuer credit rating.

“Five Star reported lower-than-expected EBITDA through the first half of 2023. To combat supply chain disruption, Five Star imported certain raw materials in the third quarter of 2022 to ensure it could service the strong demand expected from dry pet food customers over the next few quarters. During this time, the company faced higher transportation costs, negatively affecting EBITDA. Also suppressing EBITDA generation was the combination of customer destocking, reducing volumes and the slow unwinding of the company's higher levels of inventory,” S&P said in a press release.

The agency said it does expect the company to deliver positive free operating cash flow in 2023.

“The negative outlook reflects the risk that the company will not improve its S&P Global Ratings-adjusted leverage below our 6.5x threshold and/or free operating cash flow (FOCF) to debt falls below 3% over the next 12 months with no clear path for improvement,” S&P said.

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