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04 May 2004
MOODY'S ASSIGNS B2 TO CONSOLIDATED CONTAINERS PROPOSED SECURED CREDIT FACILITY AND B3 TO 2ND LIEN NOTES; EXISTING RATINGS AFFIRMED; RATINGS OUTLOOK CHANGED TO STABLE FROM NEGATIVE
Approximately $595 million of debt securities affected
New York, May 04, 2004 -- Moody's Investors Service assigned ratings to the proposed new debt of
Consolidated Container Company LLC ("Consolidated Container")
and affirmed existing ratings reflecting continued softness in volume,
price concessions, and weak -- albeit stabilizing -- credit
statistics. The ratings express ongoing concern regarding the company's
ability to consistently execute its turnaround strategies, which
have begun to gain traction; to sustain improvements in product quality,
customer relations, and plant efficiency; and to judiciously
make capital expenditures. The ratings also reflect the susceptibility
of margins to increased resin costs and weak end-user demand.
The change in the ratings outlook to stable from negative acknowledges
improvement in liquidity pro-forma for the proposed transactions
as well as greater visibility into its project pipeline and the related
contribution to earnings.
Today, Moody's took the following ratings actions:
B2 rating assigned to the proposed $245 million 1st lien credit
facility consisting of a $45 million revolver and a $200
million term loan, both maturing on 12/15/08
B3 rating assigned to the proposed $170 million 2nd lien senor
note, due 6/15/09
Caa2 rating affirmed for the $185 million 10.125%
senior subordinated note, due 2009
B3 senior implied rating affirmed
Caa2 senior unsecured issuer rating affirmed (non-guaranteed exposures)
The ratings outlook changed to stable from negative.
The proposed transactions are intended to partially refinance Consolidated
Container's existing secured bank debt (approximately $391
million outstanding) at March 31, 2004 and to pay related fees and
expenses. Moody's will withdraw the rating of Consolidated
Container's pre-refinancing credit facility. Additionally,
the company will use approximately $10 million of cash on hand
toward the refinancing.
Concurrently, the company intends to use the proceeds received as
new equity downstreamed from its parent company, Consolidated Container
Holdings LLC ("Holdings") arising from the proposed issuance
of preferred stock of approximately $45 million. This 16%
payment-in-kind perpetual maturity preferred stock (not
rated by Moody's) is expected to be held by the Sponsors,
Vestar Capital Partners III, L.P. ("Vestar")
and Dean Foods Company ("Dean").
Meaningful improvement in liquidity coupled with solid performance year-to-date
relative to expectations contribute to the stabilization of the ratings
outlook. In Moody's opinion, there could be several
quarters of modest fluctuations in financial performance before Consolidated
Container would be considered solid in its ratings categories.
Any material negative variance under revised expectations could result
in a negative ratings outlook and could trigger a downgrade in the rating
of subordinated debt.
Pro-forma for the proposed transactions, financial leverage
remains very high at approximately 12 times EBIT (6.5 times EBITDA)
and climbs slightly higher when adjusted to include preferred stock and
operating leases. EBIT remains insufficient to fully satisfy interest
expense. There is deficit free cash flow. Pro-forma
liquidity should benefit from cash on hand (post the proposed transactions)
averaging around $20 million plus roughly $31 million of
availability under the proposed $45 million first lien revolver,
net of approximately $14 million in outstanding letters of credit.
Revised financial covenants should also provide additional relief and
help to provide orderly access to the revolver.
The B2 rating assigned to the proposed first lien credit facility reflects
its senior position in the pro-forma capital structure.
Adequate collateral coverage in a distress scenario allows for notching
the first lien debt one level above the senior implied rating of B3.
The proposed facility will be secured by a first priority lien on substantially
all domestic assets of the borrower, Consolidated Container.
Unconditional guarantees by all of its subsidiaries support the facility.
Financial covenants were not finalized at the time of Moody's review.
However, covenants are expected to address minimum interest coverage;
maximum first lien leverage; maximum secured leverage; and limitations
on capital expenditures.
The B3 rating assigned to the proposed second lien note reflects the contractual
subordination to first lien debt, which is sizable at approximately
$200 million. In Moody's opinion, full collateral
coverage in a distress scenario is expected, however coverage would
be less robust and therefore, the second lien debt is rated one
notch below the first lien debt. The proposed notes will be secured
by a second priority lien on the same collateral as the first lien debt.
Unconditional guarantees, on a second lien basis, by all of
Consolidated Container's subsidiaries, support the note.
Interest payments are intended to be payment-in-kind ("PIK")
for the first three years, and the notes will be non-callable
for the first three years.
The affirmation of the Caa2 rating for the existing subordinated note
continues to reflect the contractual subordination to sizable amounts
of senior debt (approximately $384 million funded debt and letters
of credit outstanding plus trade payables and accrued liabilities totaling
approximately $100 million).
Based in Atlanta, Georgia, Consolidated Container Company
LLC is a domestic manufacturer of rigid plastic containers for mostly
branded consumer products and beverage companies. Products are
sold to the diary, water, other beverage, food,
household chemical and personal care, automotive, agricultural,
and industrial chemical sectors. For the fiscal year ended December
31, 2003, revenue was approximately $740 million and
EBITDA was approximately $84 million.
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Kendra M. Smith
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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