S&P lowers NewPage's corporate credit rating to CCC from CCC+ after weak Q2 results and decision to hold off on asset sales, places all ratings on CreditWatch negative
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NewPage Corp. Ratings Lowered On Constrained Near-Term Liquidity And Placed On Watch Negative
* U.S.-based paper manufacturer New Page Corp. has constrained near-term liquidity after the company posted weaker-than-expected second-quarter results and decided to hold off on previously announced asset sales.
* We have lowered the corporate credit rating and first-lien notes rating to 'CCC'. We lowered the issue rating on the second-lien and subordinated notes to 'CC'. The recovery ratings are unchanged.
* We placed the ratings on CreditWatch negative to reflect our increased concerns about the company's ability to service its capital structure during the remainder of 2011.
Standard & Poor's Ratings Services said today it lowered its corporate credit rating on Miamisburg, Ohio-based NewPage Corp. to 'CCC' from 'CCC+'.
At the same time, we lowered the issue-level rating on the company's first-lien notes to 'CCC' from 'CCC+'. The recovery rating remains '4', indicating our expectation that lenders can expect average (30% to 50%) recovery in the event of a payment default. We also lowered the issue-level rating on the company's second-lien notes and senior subordinated notes to 'CC' from 'CCC-'. The recovery rating remains '6', indicating our expectation that lenders can expect negligible (0% to 10%) recovery in the event of a payment default. (For the complete recovery analysis, see Standard & Poor's recovery report on NewPage to be published on RatingsDirect following this release.)
We subsequently placed all ratings on NewPage on CreditWatch with negative implications.
"The rating actions follow NewPage's recently announced weaker-than-expected operating results for the quarter ended June 30, 2011, and the decision to hold off on its previously announced asset sales," said Standard & Poor's credit analyst Tobias Crabtree. Based on our lowered 2011 EBITDA expectations and the likelihood of no additional material assets sales over the upcoming months, we believe NewPage could be challenged to meet its fixed charges, including over $160 million of cash interest expense, during the remainder of 2011. In addition, the company faces significant debt maturities and the maturity of its revolving credit facility within the next year if it cannot repay or refinance its $1 billion of second-lien notes by December 2011.
For the remainder of 2011, higher anticipated average selling prices and a seasonal increase in demand for coated papers are expected to lead to an improvement in operating performance when compared with the first half of 2011. Still, higher cost inflation and a more uncertain economic outlook are likely, in our view, to result in second half operating performance being challenged to meet the prior year's similar period adjusted EBITDA of about $225 million. As a result, we believe 2011 adjusted EBITDA could now materially fall below the company's $400 million of estimated annual cash interest expense and maintenance-related capital expenditures. We expect the company to remain highly leveraged, with adjusted debt to EBITDA likely exceeding 10x and its fixed-charge coverage remaining below 1x throughout 2011. Because demand correlates closely to general economic conditions, highly cyclical advertising spending, and exchange rates, we think NewPage's financial results and credit measures will fluctuate widely during the course of a cycle.
Standard & Poor's will likely resolve this CreditWatch once it has a better understanding of what steps NewPage intends to take with regards to repaying or refinancing its $1 billion second-lien notes due May 2012 by Dec. 2, 2011.
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