Moody's assigns B2 rating to the proposed €250 million senior secured notes due 2024
Milan, October 14, 2019 -- Moody's Investors Service (Moody's) has today assigned a B2 corporate
family rating (CFR) and a B2-PD probability of default rating (PDR)
to Schoeller Packaging B.V. (Schoeller Allibert),
the new parent company of the Dutch returnable transit plastic packaging
manufacturer Schoeller Allibert. Concurrently, Moody's has
assigned B2 rating to the proposed €250 million senior secured notes
due 2024 to be issued by Schoeller Packaging B.V..
The outlook on all ratings is negative.
At the same time, Moody's has withdrawn the B2 CFR and the
B2-PD PDR of Schoeller Allibert Group B.V.,
the former parent company of the group.
Proceeds from the new notes will be used to repay the 2021 notes,
which rating will be withdrawn upon their redemption, to repay the
drawings under the existing RCF and to pay the transaction fees.
At close, Moody's expects the company to have €15 million
of cash on the balance sheet and €28 million availability under its
new super senior revolving credit facility (RCF).
"While the proposed refinancing will improve the liquidity profile
of the company in a broadly leverage neutral transaction, the ability
to de-lever and generate positive free cash flow is largely dependent
on the successful execution of the management growth strategy in the context
of a subdued macro environment. This risk is reflected in the negative
outlook", says Donatella Maso, Moody's analyst and lead
analyst for Schoeller Allibert.
The list of all new and affected ratings can be found at the end of this
press release.
RATINGS RATIONALE
With the proposed refinancing, the company will improve its liquidity
profile by postponing the current debt maturity wall to 2024, and
by reducing the interest costs, in a leverage neutral transaction.
Pro forma for the transaction, gross leverage will remain high at
around 5.7x based on last twelve months ending 30 June 2019 EBITDA
which has been adjusted to reflect the exceptional costs related to the
exit process of JP Morgan and commercial settlements. The high
leverage is a result of lower than expected growth in Q4 2018 and Q1 2019
and increased use of non-recourse factoring and the revolver.
Moody's expects Schoeller Allibert to gradually de-lever
towards 5.2x by the end of 2020. Furthermore, Moody's
expects the company to turn its free cash flow generation positive in
2020 driven by interest savings, assuming a successful refinancing,
lower capital spending and the lack of large one off items such the Swedish
tax liability and the JP Morgan exit fees.
However, the prospective improvement in EBITDA and cash flow generation
over the next 12 to 18 months remains largely contingent to the success
of the "Big 3" products as well as the launch of other new
products, the volume recovery with its largest client IFCO,
which contract has now been extended by two years to 2024, and achievement
of the €3 million synergies from operational improvements,
in the context of a subdued macro environment. Furthermore,
a potential non-deal Brexit may lead to an economic downturn in
the United Kingdom and the European Union which could result in a deterioration
of the company's customers' and suppliers' operations.
The B2 rating also reflects (1) the relatively small size of the company
relatively to other rated packaging manufacturers; (2) its exposure
to the cyclicality as the purchase of Schoeller Allibert's products
is typically seen as a capital investment, and is therefore subject
to deferral during periods of a severe downturn, intense competition;
(3) the highly competitive industry in the context of the commoditised
nature of the company's products resulting in pricing pressure;
(4) some concentration with its largest client representing 16%
of revenue in 2018; and (5) the required investments in new products
and customised moulds in order to support future growth. Additionally,
a degree of seasonality and the project nature of some of the business
could introduce intra-year volatility to financial metrics.
Conversely, the B2 rating is positively supported by (1) Schoeller
Allibert's leading market position in the Returnable Transit Packaging
(RTP) sector in Europe with an estimated 20% share; (2) its
innovation capabilities enabling the company to benefit from the continuous
positive trends in the sector; and (3) a degree of geographic and
end-market diversity.
Moody's would like to draw attention to certain governance considerations
with respect to Schoeller Allibert, which is owned by private equity
firm Brookfield. As is often the case in highly levered,
private equity sponsored deals, owners have a high tolerance for
leverage/risk and this has been factored into its assessment of the credit
risk associated with Schoeller Allibert.
LIQUIDITY
Moody's views Schoeller Allibert's liquidity profile as adequate.
It is underpinned by €15 million cash on balance sheet at close,
€28 million availability under its super senior revolving credit
facility (RCF) due 2024 and several factoring arrangements, which
are to be renewed in order to manage intra-year fluctuations in
receivables, and lack of material debt maturity until 2024.
The company also benefits from a €65 million committed stand-by
facility in the form a subordinated shareholders' loan provided by Brookfield
Business Partners, currently drawn for €7.8 million
and treated as equity under Moody's hybrid methodology.
These sources are deemed sufficient to support the company growth strategy
in terms of capital investments, and intra year fluctuations in
working capital. In this context, Moody's notes that
lower interest costs following the refinancing will support stronger cash
flow generation.
The super senior RCF has a financial covenant, which is tested on
a quarterly basis, where net drawn super senior leverage must not
exceed 1.0x of the company's EBITDA. Moody's
expects the company to continue to comply with this covenant.
STRUCTURAL CONSIDERATIONS
Using Moody's Loss Given Default (LGD) methodology, the B2-PD
PDR is aligned to the B2 CFR. This is based on a 50% recovery
rate at family level, as is typical for transactions including both
bonds and bank debt. Both the notes and the super senior RCF share
the same security and guarantees but the notes ranks junior to the RCF
upon enforcement under the provisions of the intercreditor agreement.
Security includes pledges over shares, bank accounts, receivables,
and certain UK assets. Material subsidiaries which guarantee the
notes represent at least 83% of the group EBITDA or 81%
total assets.
RATIONALE FOR THE NEGATIVE OUTLOOK
The negative outlook reflects the risk of Schoeller Allibert of not being
able to improve its credit metrics and its free cash flow generation over
the next 12 to 18 months in the context of subdued macro conditions.
To stabilize the outlook Schoeller Allibert should demonstrate a steady
deleveraging trajectory towards 5.0x and the ability to generate
positive free cash flow. The outlook also incorporates Moody's
assumption that the company will not lose any material customer and it
will not engage in material debt-funded acquisitions.
WHAT COULD CHANGE THE RATING UP/DOWN
Positive pressure on the ratings is unlikely in the near term.
However it could develop if Schoeller Allibert's credit metrics were to
improve as a result of a stronger-than-expected operational
performance, leading to Moody's adjusted debt/EBITDA ratio below
4.0x, and positive free cash flow (as defined by Moody's),
both on a sustainable basis.
Negative pressure on the ratings could arise if Schoeller Allibert's
operating profitability deteriorates, Moody's adjusted leverage
remains sustainably above 5.0x; free cash flow continues to
be negative in 2020; and liquidity deteriorates.
The principal methodology used in these ratings was Packaging Manufacturers:
Metal, Glass, and Plastic Containers published in May 2018.
Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
LIST OF AFFECTED RATINGS:
Assignments:
..Issuer: Schoeller Packaging BV
.... LT Corporate Family Rating, Assigned
at B2
.... Probability of Default Rating,
Assigned at B2-PD
....Senior secured notes, Assigned at
B2
Outlook Actions:
..Issuer: Schoeller Packaging BV
....Outlook, Assigned Negative
Withdrawals:
..Issuer: Schoeller Allibert Group BV
.... LT Corporate Family Rating, Previously
rated B2
.... Probability of Default Rating,
Previously rated B2-PD
Headquartered in the Netherlands, Schoeller Allibert is a returnable
transit plastic packaging manufacturer operating primarily in Europe and
the US, employing approximately 2,000 people. For the
last twelve months to 30 June 2019, the company generated revenue
of €521 million and EBITDA of €63 million as adjusted by Moody's.
The company is the result of the August 2013 legal integration between
the Schoeller Arca Systems Group and the Linpac Allibert Group,
the returnable transport packaging business of Linpac Group. Since
May 2018, Schoeller Allibert is 70% owned by the private
equity Brookfield Business Partners L.P. and 30%
by the Schoeller Industries B.V., a family-owned
business with a broad focus on packaging, transport and logistics
systems.
REGULATORY DISCLOSURES
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.
With reference to the withdrawal of the ratings of Schoeller Allibert
Group B.V.: The rating has been disclosed to the rated
entity or its designated agent(s) and issued with no amendment resulting
from that disclosure.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Donatella Maso
Vice President - Senior Analyst
Corporate Finance Group
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Ivan Palacios
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
