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Rating Action:

Moody's affirms Greif's Ba2 CFR, revises outlook to negative

03 Apr 2020

New York, April 03, 2020 -- Moody's Investors Service ("Moody's") affirmed Greif, Inc.'s Ba2 corporate family rating, its Ba2-PD probability of default rating, various instrument ratings and revised the rating outlook to negative from stable. The Speculative Grade Liquidity Rating remains SGL-2. The negative outlook reflects Moody's view that credit metrics may weaken despite planned deleveraging due to the expected impact of the coronavirus pandemic on the global economy.

Affirmations:

..Issuer: Greif, Inc.

.... Corporate Family Rating, Affirmed Ba2

.... Probability of Default Rating, Affirmed Ba2-PD

....Senior Unsecured Regular Bond/Debenture, Affirmed B1 (LGD5) from (LGD6)

..Issuer: Greif Luxembourg Finance SCA

....Gtd Senior Unsecured Regular Bond/Debenture, Affirmed Ba3 (LGD5)

Outlook Actions:

..Issuer: Greif, Inc.

....Outlook, Changed To Negative From Stable

..Issuer: Greif Luxembourg Finance SCA

....Outlook, Changed To Negative From Stable

RATINGS RATIONALE

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The industrial packaging sector will be affected by the shock given its sensitivity to industrial demand and sentiment. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety, as well as the associated economic impact.

The change in outlook is prompted by substantive deterioration in global macroeconomic conditions that will result in weaker earnings in 2020 and possibly beyond. Before the global spread of the coronavirus and substantial downward revisions to our macroeconomic forecast, Moody's already expected ongoing weakness in the company's legacy industrial packaging business that sells steel, plastic, fiber and other containers to various cyclical end markets and additional pressures from lower containerboard and paperboard prices. Although performance in the first calendar quarter (company's second fiscal quarter) has been in line with expectations and supported by a near-term surge in demand for some consumer staples and bulk shipments, such as hand sanitizer, we expect performance to weaken as global macroeconomic conditions worsen, which may delay deleveraging below the 4.2 times set in our downgrade trigger. At the same time, Greif's management could offset lower projected sales volumes with cost management actions, projected improvement in working capital, reductions in capex and proceeds from the sale of its consumer paperboard converting facilities. Nevertheless, the negative outlook also reflects a potential for a slow recovery to pre-recession levels of global trade.

Greif's Ba2 rating is constrained by high leverage following Caraustar acquisition in February 2019 with Moody's adjusted debt/EBITDA at 4.4x in the twelve months ended January 2020. The rating is also constrained by the cyclicality in its end markets, low rate of growth, commoditized product line and lengthy pass-throughs for raw material price increases. Greif's credit profile benefits from the company's size, leadership market positions in most of its products, as well as its geographic, customer and end market diversity and some exposure to consumer or agricultural end markets which are less cyclical. Greif's business operations are closely embedded into customer's operations and Greif has long-term relationships with many of its customers.

Greif's SGL-2 speculative grade liquidity rating indicates a good liquidity profile with the expectation that obligations over the next 12 months will be met through internal sources of liquidity, as we project positive free cash flow after a dividend of over $100 million. The company maintains a modest amount of cash on hand which is primarily held overseas. Greif's liquidity is supported by an $800 million revolving multi-currency senior secured credit facility which expires on February 11, 2024, of which approximately $150 million was drawn as of January 31, 2020. Greif also maintains a $275 million domestic trade accounts receivable securitization facility and trade receivables securitization facilities in Europe (EUR 100 million). Both facilities expire in 2020 but are expected to be renewed, while its Singapore facility (15.0 million Singapore Dollars) will not be renewed after it expires in 2020. The next significant debt maturity is the EUR 200 million senior unsecured notes due July 2021. We expect the company to be able to use its revolver to repay debt if it cannot access markets to refinance. Headroom under the leverage covenant may tighten if there is deterioration in earnings. The 4.75x leverage covenant steps down to 4.5 in July 2020. The credit facilities are not secured by Greif's timberland (over 251,000 acres), so the company has a meaningful source of alternate liquidity.

The negative outlook reflects an expectation of weaker operating performance that may delay deleveraging expected after the company acquired Caraustar in February 2019. We could stabilize the outlook if operating environment and performance improve and the company uses free cash flow to delever.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings could be downgraded if Greif fails to improve credit metrics over the intermediate term, there is a deterioration in the cushion under existing financial covenants, and/or a deterioration in the competitive or operating environment. Specifically, the rating could be downgraded if funds from operations to debt decline to below 16.5%, debt to EBITDA remains over 4.2 times, and/or EBITDA to interest declines below 4.8 times.

An upgrade is unlikely at this time. The rating could be upgraded if the company sustainably improves credit metrics with the context of a stable operating and competitive environment. An upgrade would be contingent upon the maintenance of sound financial policies. Specifically, the rating could be upgraded if funds from operations to debt increases to over 21%, debt to EBITDA is below 3.5 times, and/or EBITDA to interest improves to over 5.8 times.

We view companies that manufacture packaging materials as having moderate environmental risk, that is broadly manageable. Moody's believes the company has established expertise in complying with these risks, and has incorporated procedures to address them in their operational planning and business models. Governance risks compared to other publicly-traded companies are heightened by a concentrated family ownership and control of the board.

Greif, Inc. ("Greif"), headquartered in Delaware, Ohio, is one of the leading global industrial packaging products and services companies. Greif produces steel, plastic, fiber and corrugated and multi-wall containers for a wide range of industries. Greif also provides services, such as container lifecycle management and blending, produces containerboard and uncoated recycled board and manages timber properties in North America. For the 12 months ended January 31, 2020, the company generated approximately $4.8 billion in revenue.

The principal methodology used in these ratings was Packaging Manufacturers: Metal, Glass, and Plastic Containers published in May 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1120393. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For 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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating outcome announced and described above.

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.

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.

Anastasija Johnson
VP-Sr Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Glenn B. Eckert
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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