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Investing.com -- S&P Global Ratings has assigned an ’A’ issue-level rating to the proposed senior unsecured notes of The Hershey Co (NYSE:HSY). The final issue amount and coupon are yet to be determined. The company is expected to use the net proceeds from this leverage-neutral transaction for general corporate purposes, which includes repayment of its $300 million 0.900% notes due on June 1, 2025, and $300 million 3.200% notes due on August 21, 2025, as well as outstanding commercial paper balances.
All existing ratings on Hershey, including the ’A’ long-term issuer credit rating and ’A-1’ short-term rating, remain unchanged. The outlook for the company is stable.
Hershey is currently dealing with a weak consumer environment and significantly high cocoa futures prices, which have tripled since 2023. To partly offset these higher cocoa and other input costs, the company plans to implement productivity savings, price pack architecture, and price increases. However, due to the scale of the cost increases, it will inevitably absorb much of the costs.
Consequently, S&P Global Ratings anticipates that margins will contract substantially in fiscal 2025 and adjusted EBITDA could decline by more than 20%. This could lead to a temporary increase in leverage close to 2x, reducing the company’s cushion for debt-financed acquisitions and share repurchases against their downgrade trigger. Despite these challenges, the company’s conservative financial policies, including its 1.5x-2x leverage target, continue to support the ratings provided by S&P Global Ratings.
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