Duff & Phelps Credit Rating Co. (DCR) continues to maintain the ratings of Nabisco Group Holdings Corp. (NGH) and Nabisco, Inc. on Rating Watch–Uncertain pending the outcome of a possible sale of NGH or its interest in Nabisco Holdings Corp. (NA), the parent of Nabisco, Inc. NGH owns approximately 80.6 percent (representing a 98 percent voting interest) of the total shares outstanding of NA. The remaining shares of NA are publicly held.
As contemplated under Carl Ichan’s most recent offer of $22 per share of NGH ($19 paid in cash and $3 in a two-year note), total debt at Nabisco, Inc. would nearly double from about $4.0 billion to $7.5 billion. Existing debt at Nabisco, Inc. would be repaid with proceeds of $7.5 billion of new financing. The remaining proceeds would be used to pay a special dividend to NA shareholders, approximately $2.7 billion of which would go to NGH to partially fund the acquisition. Such new financing, if obtained, would be of speculative credit quality. The remainder of the cash needed to purchase NGH would come from other Ichan-related entities.
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NGH is continuing to explore all alternatives to maximize shareholder value, including the sale of NGH or its ownership stake in NA to other interested parties in addition to Carl Ichan. As such, the company’s ratings remain on Rating Watch-Uncertain given the potential that another bidder of stronger creditworthiness could make an offer. Resolution of the Rating Watch status will require clarity as to the financial and legal implications of a sale or other transaction related to either NGH or NA. Rating considerations will include the impact of a proposed deal on NGH’s and NA’s financial leverage and the use of cash proceeds received, if any.
Currently, Nabisco, Inc.’s senior unsecured debt and bank credit facilities are rated ‘BBB’ (Triple-B). The company’s $2 billion commercial paper program is rated ‘D-2’ (D-Two). Rated debt outstanding at December 31, 1999 totaled approximately $4 billion. NGH’s approximate $100 million of trust preferred securities are rated ‘BBB-‘ (Triple-B-Minus). NGH holds more than $100 million in high-grade commercial paper that is intended but not required to be used for interest and principal payments on the trust securities. The trust securities are subject to a mandatory redemption in 2003.
For additional research on Nabisco, visit DCR’s Web site at http://www.dcrco.com (Quick Search: Nabisco). DCR’s research is also available on Bloomberg at DCR
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