Singapore, November 10, 2020 -- Moody's Investors Service has confirmed the B2 corporate family
rating (CFR) of IBC Capital Limited (Goodpack) following the successful
refinancing of its $195 million credit line due March 2021.
At the same time, Moody's has confirmed the B2 senior secured
rating on the $610 million first lien term loan due September 2023,
and the B3 senior secured rating on the $155 million second lien
term loan due September 2024. These loans are issued by Goodpack
as the parent borrower and IBC Capital US LLC as the US co-borrower,
and substantially guaranteed by all subsidiaries.
The outlook on all ratings is changed to negative from rating under review.
This action concludes the review for downgrade initiated on 2 July 2020.
"The ratings confirmation reflects the improvement in Goodpack's
liquidity position following the successful refinancing of its $195
million credit line due March 2021," says Stephanie Cheong,
a Moody's Analyst. "However, the negative outlook
reflects the company's elevated leverage, which we expect
will remain at the top end of our tolerance range over the next 12-18
months, barring a meaningful expansion of profitability."
RATINGS RATIONALE
On 6 November 2020, Goodpack successfully refinanced its $195
million credit line due March 2021 with a new $200 million credit
line from BDO Unibank, Inc. (Baa2 stable). The new
credit line consists of (1) a $175 million revolving credit,
and (2) a $50 million letter of credit facility, both subject
to a maximum utilization of $200 million in aggregate.
The new credit line will extend Goodpack's debt maturity profile
by more than two years to 2023. The increase in its revolving credit
to $175 million from $95 million under its previous credit
line also provides the company with more financial flexibility to fund
container purchases on top of general working capital spending.
Goodpack's B2 CFR reflects Moody's expectations that the company
will maintain a good liquidity profile and continue to generate free cash
flow over the next 12-18 months. Moody's expects Goodpack's
cash balance of $78 million, along with its operating cash
flow, will be sufficient to cover its capital spending and $84
million of supplier payables, and service its debt amortization
of around $9 million over the next 18 months. Goodpack's
liquidity is further bolstered by access to its $175 million revolving
credit facility, of which, we estimate around $94 million
is available.
That said, the company will face a large refinancing wall in 2023
where it will have its new $200 million credit line come due in
March and its $610 million first-lien term loan due in September.
But Moody's expects Goodpack to be proactive in its capital management
and address its maturing debt well in advance of maturity.
Given its elevated leverage, Goodpack was already weakly positioned
for its B2 rating even prior to the coronavirus outbreak. With
the coronavirus pandemic exacerbating the effects from a cyclical downturn
in the global tire market, the company's credit profile will
likely remain weak for a prolonged period.
While Goodpack's earnings should improve in fiscal 2021 ending in
June 2021, driven by a recovery in trip volumes following rubber
production restarts, new contract wins and ongoing cost rationalization
efforts, lower global tire production and consumer demand will challenge
the trajectory of its earnings recovery.
Moody's estimates Goodpack's leverage -- as measured
by adjusted debt/EBITDA -- will be around 6.6x at the end
of fiscal 2022, after peaking above 7.0x in the current year.
Goodpack's B2 CFR continues to reflect its (1) high customer, channel
and supplier concentration, which exposes its business to the current
downturn in the automotive industry and slowing global trade; (2)
aggressive financial policies, following its acquisition by Kohlberg
Kravis Roberts & Co L.P. (KKR); and (3) small scale
when compared with rated peers. These factors are balanced against
Goodpack's leading position in the niche logistics market for rubber and
synthetic rubber and high EBITDA margins, which are typically at
or above 45%.
In terms of environmental, social and governance (ESG) factors,
Moody's has considered governance risk arising from Goodpack's concentrated
ownership and its aggressive financial policy as demonstrated by its heightened
refinancing risk and tolerance for elevated leverage following the leveraged
buy-out by Kohlberg Kravis Roberts & Co L.P.
in 2014.
The negative outlook reflects Moody's expectations that the company's
credit metrics will remain stretched for its rating level over the next
12-18 months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Given the negative outlook, the ratings are unlikely to be upgraded
over the next 12-18 months.
The ratings could be stabilized if Goodpack demonstrates an ability to
reduce its financial leverage, such that it stays well below 6.5x
and EBITA/Interest exceeds 1.5x over a sustainable period while
maintaining a good liquidity profile.
The rating could be downgraded if Goodpack's earnings decline and
margins weaken such that its (1) financial leverage is sustained above
6.5x; or (2) EBITA/interest is consistently below 1.5x;
or (3) available liquidity, defined as cash plus committed revolving
facilities availability, falls below $40 million.
The principal methodology used in these ratings was Business and Consumer
Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
IBC Capital Limited, operating as Goodpack, acquired Goodpack
in September 2014 for $1.4 billion. IBC Capital Limited
is an indirect wholly-owned subsidiary of a fund affiliated and
advised by Kohlberg Kravis Roberts & Co L.P.
Headquartered in Singapore, Goodpack owns a fleet of 4.06
million intermediate bulk containers used for the packaging, transportation
and storage of cargo; primarily natural rubber and synthetic rubber.
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.
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Stephanie Cheong
Analyst
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Ian Lewis
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
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