Kraft Heinz ratings under review for downgrade following split plan

Investing.com -- Moody’s Ratings has placed Kraft Heinz Foods Company’s ratings under review for downgrade following the company’s announcement of plans to separate into two distinct companies.

The review includes Kraft Heinz’s Baa2 senior unsecured ratings and Prime-2 commercial paper ratings, Moody’s said on Tuesday. The agency also placed under review the Baa2 backed senior unsecured ratings of H.J. Heinz Company (Old), H.J. Heinz Finance Company, H.J. Heinz Finance UK PLC, and Kraft Foods Group, Inc. (OLD). The outlook on all entities was changed from stable to ratings under review.

The action follows Kraft Heinz’s announcement on Tuesday that it plans to separate into two companies by spinning off its North American Grocery business (NA Grocery). This business will become an independent company with approximately $10.4 billion in sales and $2.3 billion in company-defined adjusted EBITDA.

The remaining business will become the Global Taste Elevation Company with $15.4 billion in sales and $4.0 billion in company-adjusted EBITDA. The transaction is expected to be completed in late 2026, subject to standard approvals.

Kraft Heinz intends to structure both companies to maintain investment grade ratings, though specific capital allocation and financial policies have not yet been determined. The company stated that existing debt is expected to either become an obligation of the Taste Elevation Company or be refinanced.

Moody’s review will assess the benefits and risks of the separation, including execution challenges, operating outlook for both businesses, and the planned capital structures and financial policies of the two entities.

The agency noted that while the separation could lead to greater focus on respective segments, there are execution risks, estimated dis-synergies of about $300 million, loss of scale for both companies, and reduced geographic diversification for the NA Grocery business.

Kraft Heinz’s current Baa2 rating is supported by its global scale, product diversity, and leading brands. The company has reduced its long-term net leverage target to approximately 3.0x from 4.0x following business divestitures in 2021.

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