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MINNEAPOLIS -- Moody's Investors Service said it might cut its credit ratings on Nash Finch Co. here after several hedge funds issued a default notice last month saying the food distributor was in breach of one of its loan obligations.
Nash Finch is disputing the default and is asking a Minneapolis court to rule that it adjusted its rates properly after raising its dividend to 18 cents per share from 13.5 cents per share.
Moody's, which placed the distributor's ratings on review for a possible downgrade due to the notice, said Nash Finch was in breach of a covenant within its senior subordinated convertible notes due 2035. The covenant provides for an adjustment in the conversion rate of the notes if Nash Finch raises its dividend.
Moody's said: "While there is no immediate effect on the cash position or liabilities of the company, the notice of default raises the risk that -- if the case is not dismissed or if the default is not cured quickly after the court's final ruling -- that the notes could be put back to the company or that cross default provision in the company's bank credit facilities could be triggered."
Nash Finch now has "B2," or speculative grade, corporate family and probability of default ratings at Moody's, which has also assigned "B2" ratings to the company's senior secured revolving credit facility and senior secured term loan.
The company's convertible senior subordinated notes have a rating of "Caa1," or speculative grade.