Moody's: Dairy Farmers outlook positive

Moody's Investors Service said it affirmed Dairy Farmers of America, Inc.'s Baa2 $155 million senior debt rating and Prime-2 short-term rating. Moody's also affirmed the Baa3 rating on the trust preferred securities of its guaranteed subsidiaries and the Ba1 rating on its $150 million preferred stock.

The outlook was revised to positive from stable.

The positive outlook is based on Moody's expectation that Dairy Farmers will likely sustain credit metrics that are stronger than required of similar companies rated Baa2. The agency said the divestiture of National Dairy Holdings LP last year and the use of proceeds primarily for debt reduction contributed to a stronger liquidity profile and improved debt protection measures.

The ratings are supported by relatively stable operating performance, sufficient liquidity, improved debt protection measures, the company's leading position as the largest farmer-owned dairy marketing cooperative in the United States and its large size and scale relative to peers, Moody's said.

The ratings are constrained by the underlying low margin, commodity nature of the fluid milk business and related earnings volatility that occurs in the company's value-added and affiliate businesses due to fluctuations in milk prices that are reflected in input costs, the agency said.

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