S&P moves Hearthside view to negative

S&P said it revised its outlook for H-Food Holdings LLC (Hearthside Food Solutions LLC) to negative from stable and affirmed the B issuer rating.

“The outlook revision to negative reflects Hearthside's elevated leverage as a result of weak profitability and underperformance from the recently acquired Interbake business. We expect S&P Global Ratings-adjusted pro forma leverage to remain elevated above 10x throughout 2022, before improving to around 8x in 2023,” the agency said in a press release.

S&P said it estimates Hearthside will suffer deep cash flow deficits in 2022 as it continues funding capital expenditures of at least $100 million over the next 12-24 months.

“We expect free operating cash flow (FOCF) to improve to negative $10 million-$20 million in 2023, as a result of cost savings and expense reductions from identified projects, before turning positive in 2024 due to increased capacity from the Interbake acquisition and recent investments in capital projects. The company continues to make investments in customer-driven projects, which began in 2020, as well as building out new production lines related to the Interbake acquisition, which should result in increased capacity and volumes for the business,” S&P said.

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