Coveris Holdings S.A. Rating Lowered To #B-# From #B; Debt Ratings Outlook Developing

Stocks and Financial Services Press Releases Tuesday November 14, 2017 08:40
NEW YORK--14 Nov--S&P Global Ratings

NEW YORK (S&P Global Ratings) Nov. 13, 2017-- S&P Global Ratings today lowered its corporate credit rating on Chicago-based Coveris Holdings S.A. to 'B-' from 'B'. Our rating outlook on the company is developing.

In conjunction with the downgrade, we also lowered the issue-level ratings on the company's senior secured facilities to 'B-' from 'B'. The recovery ratings remain '3' (50%-70%; rounded estimate: 60%).
Additionally, we are lowering the issue-level ratings on the company's senior unsecured facilities to 'CCC+' from 'B-'. The recovery ratings remain '5' (30%-10%; rounded estimate 20%).

The downgrade reflects our expectation that Coveris' adjusted debt to EBITDA will remain around 9x for the rest of 2017 with modest to little improvement in 2018. Operating trends were weak in the first half of 2017, primarily driven by rising raw materials prices and the inability to pass those on to customers, an increasingly competitive environment, and foreign exchange headwinds. While raw materials prices and foreign exchange rates may become somewhat favorable, we believe profitability will remain weak based on continued challenges around competition and lower than expected operating margins and volumes.

The developing outlook reflects our expectation that we can affirm, lower, or raise our ratings based on the outcomes the strategic alternatives will have on overall credit quality, including competitive position and credit metrics.

We could consider a downgrade if the company's operating performance continues to weaken, leading to an unsustainable capital structure, or liquidity narrows due to negative free cash flow generation. We could also lower the rating if it pursues a debt-funded dividend distribution or an acquisition keeping leverage elevated. Specifically, we could lower our ratings if such a scenario causes the company's debt to EBITDA to remain a sustained 9x or more without the prospect for a quick recovery.

We could raise the rating over the next year if the company's operating performance improves, resulting in leverage improving toward 6.5x or below on a sustained basis. In addition, we would consider an upgrade if the company pays down debt significantly, with potential sources coming from a consummated transaction.

We would also require the company to improve its free cash flow position and proactively take action to improve its capital structure.

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