Moody's mows Scotts Miracle-Gro ratings

Moody's Investors Service said it downgraded Scotts Miracle-Gro Co.'s corporate family rating to Ba3 from Ba2, the probability of default rating to Ba3-PD from Ba2-PD and the senior unsecured note ratings to B1 from Ba3. The speculative grade liquidity rating is unchanged at SGL-3.

“The downgrade reflects Moody's view that Scotts' leverage will remain high and liquidity adequate over the next two years even as the EBITDA margin and free cash flow improve. Moody's sees these factors as a significant credit risk considering the seasonality of cash flow and sensitivity to weather patterns and chemical prices. Leverage is currently high because of a weak 2022 in the lawn and garden business due to adverse weather and a lag in mitigating higher input costs, a significant pullback at the Hawthorne business, and acquisitions and shareholder distributions that consumed cash and led to higher debt,” the agency said in a press release.

However, Moody’s said it forecasts the lawn and garden business will improve with normal weather conditions because Scotts has acted to overcome higher input costs, though there is uncertainty in the Hawthorne business’ recovery. The agency is forecasting Scott’s Moody’s adjusted debt to EBITDA to decline to 4.5x over the next two years from 6.1x for the 12 months ended Dec. 31.

The outlook is negative.

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