Moody's downgrades Bemis' senior unsecured notes to Baa2 from Baa1, citing lack of improvement in credit metrics, company's decline in volumes due to soft economy; outlook negative
September 20, 2012
– Moody's Investors Service ("Moody's") downgraded the senior unsecured rating of Bemis Company Inc ("Bemis") to Baa2 from Baa1 and revised the ratings outlook to stable from negative. Moody's also affirmed the P-2 short-term rating. Additional instrument ratings are detailed below.
Moody's took the following rating actions for Bemis Inc.:
Downgraded senior unsecured rating to Baa2 from Baa1
Downgraded $400 million 5.650% Notes due 08/01/2014, Baa2 from Baa1
Downgraded $400 million 6.800% Notes due 08/01/2019, Baa2 from Baa1
Downgraded $400 million 4.5% Notes due 10/15/2021, Baa2 from Baa1
Affirmed P-2 short-term rating
Revised the ratings outlook to stable from negative
The downgrade of the senior unsecured rating to Baa2 from Baa1 reflects the lack of improvement in credit metrics to the designated rating triggers outlined in the press release dated September 27, 2011. Bemis has been negatively impacted by a decline in volumes caused by a soft economy, the withdrawal from certain low margin business and competition. Although the company has undertaken two restructurings to better align costs with revenues, Moody's believes that Bemis is unlikely to improve credit metrics to a level consistent with the rating category over the intermediate term. Bemis is likely to continue to be negatively impacted by sluggish economic conditions, lower-margin legacy contracts from the Alcan acquisition and, potentially, food price inflation. Additionally, the company's restructuring plan entails some execution risk. While credit metrics are expected to improve over the intermediate term due to the restructuring plan, Moody's believes they are unlikely to reach a level commensurate with the rating category over the horizon. Additionally, the current cushion under the existing covenants is a little less than expected for the P2 commercial paper rating, but management has pledged to improve the cushion and Moody's expects an improvement over the rating horizon.
The rating outlook is stable. The stable outlook reflects an expectation that Bemis will execute on its cost cutting initiatives and new product rollout and maintain credit metrics within the rating category.
The ratings could be upgraded if Bemis sustainably improves credit metrics within the context of a stable operating and competitive environment and maintains adequate liquidity and a balanced financial policy. Specifically, the ratings could be upgraded if free cash flow to debt rises above 16.0%, the EBIT margin rises to the high teens, debt to EBITDA declines below 2.4 times, and EBIT interest coverage rise above 5.5 times.
The ratings could be downgraded if there is a deterioration in credit metrics, the competitive and operating environment and/or liquidity. Specifically, the ratings could be downgraded if debt to EBITDA remains above 2.7 times, EBIT to interest expense declines to below 4.5 times, and free cash flow to debt remains below 11.0%.
The principal methodology used in rating Bemis was the Global Packaging Manufacturers: Metal, Glass, and Plastic Containers Industry Methodology published in June 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
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