US-based Expera Specialty Solutions, a new company formed to acquire certain assets of Wausau Paper and Thilmany Paper, receives from S&P B corporate credit rating, B+ rating for company's proposed US$178M loan, based on moderate debt level

Debra Garcia

NEW YORK , May 29, 2013 (press release) – •U.S.-based Expera Specialty Solutions LLC (Expera), a producer of specialty papers formed by private equity firm KPS Capital Partners L.P. is acquiring certain assets of Wausau Paper Corp.'s (WPM) and the stock of Thilmany Papers, (a division of Packaging Dynamics Corp.'s [PKDY]) specialty and technical papers businesses using funds from a proposed $178 million bank term loan B.
•We are assigning a 'B' corporate credit rating to Expera, reflecting the company's moderate debt level that is consistent with an "aggressive" financial risk profile.
•We are assigning our 'B+' issue-level rating to the proposed $178 million senior secured bank term loan B.
•The stable rating outlook on Expera reflects Standard & Poor's view that the company's moderate debt level following the proposed transaction will provide financial flexibility to fund its capital needs, maintain adequate liquidity, and pursue growth initiatives, including modest acquisitions, over the near to intermediate term.

Standard & Poor's Ratings Services said today it assigned its 'B' corporate credit rating to U.S.-based Expera Specialty Solutions LLC.

At the same time, we assigned a 'B+' issue-level rating to Expera's proposed $178 million seven-year senior secured bank term loan B, one notch above the corporate credit rating, indicating our expectation of substantial (70% to 90%) recovery for lenders in the event of payment default. We also assigned a '2' recovery rating.

"The company intends to use proceeds to facilitate the acquisition of WPM and Thilmany and to provide operational liquidity," said Standard & Poor's credit analyst Thomas Nadramia.

The corporate credit rating on Expera reflects a combination of what we consider to be the company's "aggressive" financial risk profile, "vulnerable" business risk profile, and "adequate" liquidity.

The stable rating outlook on Expera reflects Standard & Poor's view that the company's moderate debt level following the proposed transaction will provide financial flexibility to fund its capital needs, maintain adequate liquidity and pursue growth initiatives, including modest acquisitions over the next two to three years. We expect credit metrics to be good for an aggressive financial risk profile with leverage of about 3x by the end of 2013.

A downgrade could occur in the near term if Expera falls well short of our EBITDA expectations due to difficulties in initial start-up of this new entity, loss of customers or other execution difficulties, resulting in credit measures more in line with a "highly leveraged" financial risk profile of about 5x. We could also take a negative rating action if Expera's pursued a more aggressive debt financed expansion strategy, or if ownership engaged in debt funded dividends or other leveraging events.

We do not expect a positive rating action in the next year given Expera's lack of history as a stand-alone entity, its private equity ownership and low likelihood for meaningful free cash flow generation given its sizeable required capital expenditures in 2013-2014.

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