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Rating Action:

Moody's places Schweitzer-Mauduit ratings -- Ba3 CFR and B2 senior unsecured -- on review for downgrade

28 Jan 2021

New York, January 28, 2021 -- Moody's Investors Service ("Moody's") has placed the ratings of Schweitzer-Mauduit International, Inc. ("SWM") on review for downgrade, including the Ba3 corporate family rating ("CFR"), Ba3-PD probability of default rating and the B2 senior unsecured rating. The SGL-2 speculative grade liquidity rating is unchanged.

These actions follow SWM's plan to acquire UK-based Scapa Group Plc ("Scapa") -- a manufacturer of bonding products and adhesive components for healthcare and industrial applications - in a transaction valued at approximately GBP403 million (or $552 million), expected to close in the second quarter of 2021.

The review is expected to be completed within several weeks. A rating downgrade, if any, is likely to be limited to one notch.

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

Moody's review will consider: (1) the expected capital structure and leverage of SWM post-close, and the prospects and pace for deleveraging based on Moody's expectation for cash flow and profitability; (2) the integration risks, as this is a sizeable investment for SWM, including potential cash costs and/or business disruption; (3) the strategic and financial policy changes for SWM implied by the acquisition; (4) SWM's financial performance going forward, including its free cash flow generation and overall liquidity; and (5) SWM's competitive position in its Advanced Materials & Structures ("AMS") segment once Scapa is integrated, including the effects of the coronavirus pandemic on the business and end markets.

The acquisition will increase SWM's debt meaningfully, with pro forma total debt-to-EBITDA (including Moody's standard adjustments) likely to exceed the mid 4x range upon close, compared to around 3x at this time. This is elevated for SWM's risk profile and well above the company's current net leverage target of 2.5x-3.5x (versus 4x -- 4.5x transaction leverage), as the company calculates. Nonetheless, the Scapa acquisition is consistent with SWM's actions to reduce exposure to its Engineered Products segment, and increase the company's position on growth markets.

Moody's took the following actions:

On Review for Possible Downgrade:

..Issuer: Schweitzer-Mauduit International, Inc.

....Probability of Default Rating, Placed on Review for Downgrade, currently Ba3-PD

....Corporate Family Rating, Placed on Review for Downgrade, currently Ba3

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently B2 (LGD5)

....Outlook, Changed To Rating Under Review From Stable

The principal methodology used in these ratings was Manufacturing Methodology published in March 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1206079. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Schweitzer-Mauduit International, Inc. is a producer of specialty materials focused on resin-based nets, films and other non-wovens through its Advanced Materials & Structures segment and fiber-based cigarette papers and reconstituted tobacco products through its Engineered Papers segment. Revenues for latest twelve-month period ended September 30, 2020, were approximately $1 billion. Scapa Group Plc is a manufacturer of adhesives, coatings and topicals through its healthcare segment, and specialty tapes for various end markets in its industrial segment. Scapa's revenues approximated GBP282 million (or $361 million).

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_1243406.

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.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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.

Yvonne Njogu
Vice President - Senior Analyst
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

Robert Jankowitz
MD - Corporate Finance
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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MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000.

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​
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