Rating Action: Moody's affirms Whole Earth Brands B2 CFR; outlook revised to negative from stableGlobal Credit Research - 25 Feb 2022New York, February 25, 2022 -- Moody's Investors Service ("Moody's") today affirmed the ratings of Whole Earth Brands, Inc. ("Whole Earth Brands"), including the B2 Corporate Family Rating (CFR), B2-PD Probability of Default Rating (PDR), and the B2 rating on Whole Earth Brands' $450 million senior secured credit facilities. The speculative grade liquidity rating was downgraded to SGL-3 from SGL-2. Finally, Moody's revised the outlook to negative from stable.The outlook revision to negative from stable reflects Moody's expectation that Whole Earth Brands' debt/EBITDA on a Moody's adjusted basis will remain above 5x in the next 12 to 18 months. As of September 30, 2021, Moody's estimates that Whole Earth Brand's leverage was approximately 6x. Although Whole Earth Brands has successfully integrated its acquisition of Wholesome and Swerve, the company's EBITDA generation has been trending slightly weaker than Moody's had originally forecasted. Moody's is forecasting revenue and EBITDA growth in Fiscal 2022; albeit in the low single digit range, which leaves the company's credit metrics vulnerable to any disruption in its integration process or potential acquisitions.The downgrade of Whole Earth Brands' liquidity rating to SGL-3 reflects Moody's view that Whole Earth Brands' liquidity is slightly weaker given lower than expected free cash flow generation as well as less availability on the company's revolving credit facility. In the LTM period ended September 30, 2021, Whole Earth Brands generated $0.4 million in free cashflow, which was significantly less than Moody's forecast of approximately $40 million. Moody's is projecting Whole Earth Brands' free cash flow generation to improve in 2022, to approximately $20-25 million, albeit this is still lower than original forecasted. Lastly, the SGL-3 reflects a $30 million drawn down on the company's $75 million credit facility which reduced availability under the facility to approximately $18 million. On February 23, 2022, Whole Earth Brands paid $30 million in cash as a portion of its earnout agreement to the sellers of Wholesome, which it acquired in February 2021. The remaining $25 million of the $55 million earnout agreement was paid in equity. Given the reduced availability under the revolving credit facility combined with the lower free cash flow forecast, Moody's believes Whole Earth Brands' liquidity profile is more representative of a SGL-3 rating.The following ratings/assessments are affected by today's action:Ratings Affirmed:..Issuer: Whole Earth Brands, Inc..... Corporate Family Rating, Affirmed B2.... Probability of Default Rating, Affirmed B2-PD....$75 million Senior Secured 1st lien Revolving Credit Facility expiring 2026, Affirmed B2 (LGD3)....$375 million Senior Secured 1st lien Term Loan B, expiring 2028, Affirmed B2 (LGD3)Ratings Downgraded:..Issuer: Whole Earth Brands, Inc..... Speculative Grade Liquidity Rating, Downgraded to SGL-3 from SGL-2Outlook Actions:..Issuer: Whole Earth Brands, Inc.....Outlook, Changed To Negative From StableRATINGS RATIONALEThe B2 CFR reflects Whole Earth Brands' relatively small scale with less than $500 million in annual revenues and focus on the mature and competitive sweetener categories. Offsetting these factors are the company's global presence in the natural and sugar free sweeteners categories as well as its global leadership position in natural licorice extracts and derivatives. The rating also reflects the company's good profitability and predictable free cash flow generation resulting from its asset light business model. Moody's projects modest low single digit growth over the next few years as Wholesome and Swerve benefit from consumer demand for healthier options. Whole Earth Brands has high financial leverage, estimated to be 6x debt-to-EBITDA on a Moody's adjusted basis as of September 30, 2021.Whole Earth Brands' SGL-3 rating reflects adequate liquidity based on $34 million in cash as of September 30, 2021, $20-25 million of annual projected free cash flow in 2022, $18 million of remaining undrawn capacity on the revolver (pro-forma for the Wholesome earnout payment), and no debt maturities through 2026. The cash sources provide ample resources for the $3.75 million of required annual term loan amortization, reinvestment needs and potential acquisitions. There are no term loan financial maintenance covenants and Moody's projects the company will maintain good cushion within the maximum net leverage and minimum fixed charge coverage ratio maintenance covenants in the revolver.ESG ConsiderationsWhole Earth Brands is moderately exposed to environmental risks, including those related to natural capital and waste and pollution, among others. The company is also moderately exposed to social risks including those related to customer relations, responsible production, and health & safety.Moody's expects Whole Earth Brands' lower calorie and natural products to benefit from changing consumer food habits including a focus on healthier foods that are free from sugar and that are plant based. Demand for other company products such as artificial sweeteners are likely to be hurt by these consumer trends.Moody's views Whole Earth Brands' commitment to deleveraging and its long-term debt-to-Adjusted EBITDA target, as defined by the company of less than 3.0x, as a credit positive.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSWhole Earth Brands' ratings could be upgraded if there is a material diversification in the company's product profile, the company is able to accelerate organic revenue and earnings growth, capture a growing share of the sweeteners market, maintain good liquidity, and sustain debt-to-EBITDA below 5.0x while pursuing its acquisition-based growth strategy. Alternatively, ratings could be downgraded if organic revenue performance is weak or declining, margins contract, free cash flow is low, liquidity deteriorates, or adjusted debt-to-EBITDA is sustained above 6.0x.The principal methodology used in these ratings was Consumer Packaged Goods Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1202237. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Whole Earth Brands, Inc. ("Whole Earth Brands", NASDAQ: FREE) based in Chicago, Illinois, is a publicly traded global platform of branded products and ingredients focused on the consumer transition towards healthier lifestyles, such as free from sugar, natural solutions, plant-based and clean label. With brands such as Whole Earth, Swerve, Pure Via, Equal, and Canderel, Whole Earth Brands has formed a global presence in the zero/low sugar, calorie sweeteners and reduced sugar categories. The Company's branded product line, Magnasweet, offers versatile masking agents, sweetness intensifiers and extenders and flavor enhancers. Whole Earth Brands generated net sales for the LTM period ended September 30, 2021 of $437 million.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Frank Henson Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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