Wawona downgraded to Caa1 by Moody's on weak liquidity

MVK Intermediate Holdings LLC, doing business as Wawona, was downgraded Nov. 30 by Moody's to Caa1, from B3, and its outlook revised to negative, from ratings under review, with the agency citing weaker-than-expected third-quarter results and liquidity concerns for 2022. The company's senior secured revolving credit facility due 2024 and first-lien term loan due 2026 (Libor+475, 0% floor) were also downgraded to Caa1, from B3.

Moody's said Wawona was negatively impacted in its third quarter ended Sept. 30 by lower stone fruit prices and higher freight costs, the latter which made Wawona's fruit relatively unattractive to customers on the U.S. East Coast. Moody's also noted that the 2020 third quarter was hurt by a salmonella outbreak that led to the company voluntarily recalling products, saying the company this year faced "lingering challenges" from that situation.

The rating agency said leverage at the end of the third quarter was about 10.9x, higher than Moody's had forecast. Moody's also anticipates Wawona generating negative free cash flow in 2021, following a negative 2020. The agency expects that leverage will likely remain above 9x over the upcoming 12-18 months, with the effect of "constraining the company's financial flexibility and increasing default risk."

Moody's characterized Wawona's liquidity as weak, with "high seasonal needs" relative to its liquidity, namely $25 million in balance sheet cash and full availability on its $61.25 million revolver.

Fresno, Calif.-based Wawona is a grower, packer and shipper of conventional and organic stone fruit, citrus and tree-nut products. It is owned by private equity shop Paine Schwartz Partners.