Primo Water ratings downgraded by Moody’s, outlook stays positive

Investing.com -- Moody’s Ratings today downgraded the ratings on Primo Water (NYSE:PRMB) Holdings Inc.’s non-tendered backed senior unsecured notes from B1 to B3. This decision followed the completion and closing of the tender offers of the legacy notes issued by Primo Water Holdings Inc. and Triton Water Holdings, Inc. However, the outlook for Primo Water Holdings Inc. has been changed to positive from stable.

In addition to this, Moody’s also affirmed Primo Brands Corporation’s B1 Corporate Family Rating (CFR), B1-PD Probability of Default Rating (PDR), and Ba3 ratings for the company’s $750 million senior secured first lien revolving credit facility and $3.1 billion senior secured first lien term loan. The outlook for Primo Brands remains positive and the speculative grade liquidity rating remains at SGL-1.

The Ba3 ratings on Primo Water Holdings Inc.’s exchanged Euro denominated backed senior secured notes due 2028 and exchanged US dollar-denominated backed senior secured notes due 2029 were also affirmed. These notes are co-issued by subsidiaries Triton Water Holdings, Inc. and Primo Water Holdings Inc. and guaranteed by Primo Brands Corporation. The B3 rating on the exchanged US dollar-denominated backed senior unsecured notes due 2029, also co-issued by Triton Water Holdings, Inc. and Primo Water Holdings Inc. and guaranteed by Primo Brands Corporation, was also affirmed.

Moody’s withdrew Triton Water Holdings, Inc.’s ratings consisting of the B2 CFR, the B2-PD PDR, and the Caa1 rating on the non-tendered senior unsecured notes. The outlook for Triton Water was changed to ratings withdrawn from positive. Primo Water Holdings Inc.’s B1 CFR, B1-PD PDR and speculative grade liquidity rating of SGL-1 were also withdrawn.

On February 28, 2025, Primo Brands completed the tender offer for its legacy Primo Water Holdings Inc notes and legacy Triton Water Holding Inc notes. This followed the earlier refinancing of the credit facilities of Primo Water and Triton Water and largely completed the unification of the legacy credit structures that remained in place at the time of the November 2024 all-stock merger of the companies.

The downgrade of Primo Water Holding Inc’s non-tendered backed senior unsecured notes to B3 from B1 reflects that the guarantees were removed as part of the tender offer, which creates structural subordination with respect to the legacy Primo Water assets to substantially all of Primo Brands’ debt and reduces recovery in the event of a default.

The positive outlooks reflect Moody’s expectation that revenue and earnings of the combined entity will continue to grow, that combining the credit structure will make it easier to execute and realize the synergies from the merger that the company estimates at roughly $200 million annually, and that the combined company will reduce leverage and generate good free cash flow.

The B1 CFR of Primo Brands reflects its leading positions in the US single-serve ready-to-drink bottled water segment and home and office water delivery (HOD) business. Primo Brands also has good business diversity through its growing filtration services business. The company benefits from positive consumer trends towards healthier lifestyles in choosing beverages, a diverse customer base, and positive industry trends due to consumers seeking alternative sources for clean water due to the aging municipal water infrastructure.

Primo Brands faces risk to integrate the two businesses including merging systems, production and distribution that could lead to operational disruptions or challenges realizing synergies. The company’s credit profile is also restricted by majority private equity ownership, which Moody’s views as a governance risk that creates event risk to facilitate the exit of the private equity firms, as well as a dividend that reduces free cash flow.

Primo Brands announced plans today to repurchase 4 million shares (approximately $125 million based share price close as of Mar 7, 2025) of Primo Brands out of 46 million shares currently being sold by the equity sponsor, One Rock Capital Partners (WA:CPAP) LLC, which the company plans to fund with cash. The company’s financial leverage target range of 2.0x-2.5x net debt-to-EBITDA (3.1x pro-forma as calculated by company as of December 31, 2024) indicates a focus on deleveraging following the merger.

Moody’s expects Primo Brands will generate good annual free cash flow of approximately $100 million in 2025 and $400 million in 2026, which should be more than sufficient to support investment across its businesses. The agency also expects that debt-to-EBITDA leverage will decline to around 3.6x from 4.1x over the next year primarily from the realization of synergies that will facilitate EBITDA growth.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.