(UPDATED COVERAGE, Aug. 18) The decision by Dole Food Co. Inc. to make an initial public offering of common stock and a private offering of senior secured notes should go a long way toward paying down the companyâs massive debt and put it back in good financial standing.
At least, the moves by the Westlake Village, Calif.-based company prompted Fitch Ratings to remove Dole from its negative ratings outlook, according to news release from the Chicago-based corporate credit rating service.
The Fitch release also alluded to the âsignificant improvement in Doleâs operating performance over the past 18 months and improvement in capital marketsâ as providing the company more flexibility to address upcoming debt maturities.
For the first six months of this year, Dole earned $123 million on sales of $3.3 billion.
âFor the long-term longevity of the company, yes, itâs a good move,â said Wesley Moultrie II, an analyst at Fitch, a corporate credit rating service. âThe company has a significant amount of leverage and significant near-term maturities that need to be resolved. There will be an opportunity for those in the sector to participate and own corporate equity.â
Dole announced Aug. 14 that it had registered with the Securities and Exchange Commission for a proposed initial public offering of shares of its common stock, designed to be a combination of primary shares owned by the company and secondary shares owned by the companyâs sole current stockholder, David Murdock, who took the company private in 2003 in a transaction that valued the business at $2.5 billion.
Dole said a portion of the $500 million it hoped to receive in proceeds from the sale of stock would be used to pay down the nearly $2 billion in debt leveraged against the company.
Dole also announced it would be offering $325 million of senior secured notes, due in 2016, privately to eligible purchasers. The net proceeds from those transactions are to be used to redeem 7.25% senior notes that come due June 15, 2010.
Moultrie said Doleâs current long-term issuer default rating with his firm was âCCC,â two notches above a default rating and seven notches below investment grade. Five key ratings for various segments of Doleâs debt range from C to B-plus, all putting Doleâs borrowings in the speculative high-yield debt category, Moultrie said.
That grading could soon be on the rise, however, with these recent financial actions.
âFrom our analysis, Dole is putting itself in a stronger financial position,â Moultrie said.