Leveraged Loans: Outlook stable for integrated coffee firm Trilliant: Moody’s

  • Trilliant sales up, margins fat, environment positive: Moody’s
  • Challenges: small size, sharp leverage, tight cash flow in short term
  • Company makes single-serve coffee pods under private label

Trilliant’s rapid sales increases, fat EBITDA margins and favorable growth environment led Moody’s Investors Service to assign a stable outlook to the integrated coffee producer after a PE-led recap.

Moody’s analysts Brian Weddington and Peter Abdill gave a B3 corporate-family rating to Badger Finance, a holding company for Trilliant, the Little Chute, Wisconsin-based producer of private-label single-serve coffee pods. The rating outlook is stable.

Blackstone Group is filtering $290 million into Trilliant to enable existing holders to cash out and give the company cash to pay down existing debt and make capital investments.

Moody’s also tacked a B3 rating on to Trilliant’s new $250 million seven-year senior secured term loan.

EBITDA margins are wider than 20% and the company recently has won new business in competitive processes, the analysts wrote in a Sept. 12 report.

A key to its success: low-cost integrated production, with Trilliant doing everything from buying coffee beans to producing the coffee pods in a high-speed manufacturing system.

That’s not to say that Trilliant doesn’t face challenges. It’s a relatively small player in its field, leverage is “high” and cash flow is “limited” in the next year as the company invests in related business lines, Weddington and Abdill wrote.

At closing, Moody’s sees Trilliant’s debt at about 5.5x EBITDA. The analysts also said free cash flow will probably be negative through Q1 2018, “when the company expects to complete planned growth-capital investments, and should be positive thereafter.”

The B3 rating also reflects what the analysts called “single-plant manufacturing concentration and limited operating history.”

For Trilliant, which was founded in 1979 as Victor Allen’s Coffee, a regional coffee micro-roaster, Moody’s pegs sales over the next year at $200 million to $250 million.

Moody’s conditions an upgrade on Trilliant sustaining higher sales and earnings, success in getting new platforms launched, keeping the debt-to-EBITDA margin below 5x and generating consistently positive free cash flow.

Action Item: Contact Trilliant at https://trilliantfood.com/contacts/

Photo: Coffee producer Brigida Guarachi handles coffee plants at Cafe Munaipata in Coroico, La Paz, Bolivia, on July 21, 2017. Photo courtesy Reuters/David Mercado