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Announcement:

Moody's affirms Hoffmaster's B2 Corporate Family Rating; rates add-on debt at B1

01 Apr 2011

Approximately $275 million in rated debt affected

New York, April 01, 2011 -- Moody's Investors Service today affirmed Hoffmaster Group, Inc.'s ("Hoffmaster") B2 Corporate Family Rating and assigned a B1 rating to the company's $23 million senior secured first lien term loan add-on due 2016. The outlook remains stable.

The affirmation of the company's B2 rating reflects it still modest leverage profile, improved channel diversification and opportunity for meaningful cost synergies following its partially debt-financed acquisition of Innoware Paper, Inc. ("Innoware"). Innoware is a maker of branded paper plates, napkins and other tabletop products based in Wisconsin.

"Hoffmaster's acquisition is reasonably priced, fits well with its existing product portfolio and improves its distribution capabilities within major retail channels, specifically at value-priced warehouse club customers," says Moody's vice President and Senior Credit Officer. "Potential cost synergies are significant and over time should buoy operating margins and add revenue diversification to offset cyclicality within its foodservice segment," adds Ms. Hofferber.

Rating assigned to Hoffmaster include the following:

- $23 million senior secured first lien term loan add-on due April 2016, at B1 (LGD3, 38%)

Ratings affirmed of Hoffmaster (LGD point estimates revised):

- Corporate Family Rating at B2;

- Probability of Default Rating at B2;

- $30 million senior secured revolving credit facility due June 2015, at B1 (LGD3, 38%);

- $157 million senior secured term loan due June 2016, at B1 (LGD3, 38%); and

- $65 million second lien term loan due June 2017, at Caa1 (LGD5, 88%).

RATINGS RATIONALE

Hoffmaster's B2 Corporate Family Rating reflects its modest scale and leverage profile, narrow product focus, and shareholder friendly orientation. These factors are offset in part by its strong market presence in the foodservice channel, diversified customer base in consumer retail, and improving profitability and cash flow. While the company's product portfolio consists of low-priced, high frequency, disposable consumer necessities, its sales volume is somewhat dependent on the level of consumer spending on away-from-home dining and more discretionary party supplies.

Pro forma for the transaction, based on Moody's analytic adjustments, leverage will approximate 5.2 times Debt-to-EBITDA, versus 4.7 times at fiscal 2010. Hoffmaster has a history of debt-financed acquisitions and its high historical leverage ratio peaked at 6.6 times following its 2008 acquisition of Brooklace and Smith-Lee. Hoffmaster's ratings could be downgraded if the company's operating performance deteriorated such that debt-to-EBITDA was sustained above 5.5 times or Free Cash Flow turned negative. Although pro forma leverage would approach 5.5 times, we estimate that leverage should decline to approximately 5.0 times within twelve months assuming a successful integration process, with no cost or revenue synergies assumed in the near-term. For the Innoware acquisition, Hoffmaster has amended its senior secured first lien credit agreement to allow the company to exceed the three times pro forma debt-to-EBITDA limit on acquisitions.

Hoffmaster's ratings could be upgraded if the company was able to improve its scale and product diversification without impacting its credit metrics such that debt-to-EBITDA was sustained below 4.0 times and Free Cash Flow remained positive.

The last rating action for Hoffmaster was on March 25, 2010, when Moody's assigned the company a B2 Corporate Family Rating and Probability of Default Rating, a B1 rating to its senior secured first lien revolving credit facility and term loan, a Caa1 rating on its second lien term loan and a stable outlook.

The principal methodologies used in this rating were Global Packaged Goods Industry published in July 2009, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

Headquartered in Oshkosh, Wisconsin, Hoffmaster is a leading niche manufacturer and supplier of decorative disposable tableware products sold equally through foodservice and retail channels. The company's primary products include paper napkins, placemats, tablecovers, plates, cups, bowls and guest towels as well as sourced items such as cutlery and accessory items sold under the Hoffmaster, Touch of Color, Party Creations, Sensations, Paper Art and FashnPoint brand names.

Sales for the fiscal year ending January 2, 2011 were approximately $309 million. Hoffmaster's equity sponsor is Kohlberg & Company .

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

New York
Janice Hofferber, CFA
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Christina Padgett
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms Hoffmaster's B2 Corporate Family Rating; rates add-on debt at B1
No Related Data.
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