Moody's assigns first-time ratings to Wausau Paper, including B2 rating on company's US$175M secured term loan due 2020, also assigns SGL-3 speculative grade liquidity rating; outlook is stable, company's loan expected mainly to repay US$150M debt
July 2, 2014
– Approximately $175 million of new debt rated
Moody's today assigned first-time ratings to Wausau Paper Corp. (Wausau), including the B2 corporate family rating (CFR), B2-PD probability of default rating, and a B2 rating on the new $175 million secured Term Loan B due in 2020. Moody's also assigned a speculative grade liquidity (SGL) rating of SGL-3. The outlook is stable.
The proceeds of financing are expected to be primarily used to repay the existing $150 million in debt and pay estimated breakage fees and other transaction expenses.
Wausau's B2 corporate family rating reflects the company's position as a small player in the away from home North America tissue market, and its vulnerability to competitors that are larger, have greater market share and have more financial resources than Wausau. The rating reflects the company's exposure to volatile energy and fiber costs, as well as competitive cost structure and strong margins following significant capital investments made to enhance the operational platform. The ratings further reflect the company's limited operating history in its new configuration following the divestiture of its timberlands, printing and technical products businesses over the past three years. The company is now attempting to increase market share and reposition its brands of environmentally conscious tissue products. The ratings reflect our expectation that in the next two to three years, free cash flows will be constrained by growth capex, contribution to underfunded pension plans (including those remaining from divested operations) and repayment of severance and contract termination liabilities.
The $175 million secured term loan will have a first priority lien on all assets other than the ABL collateral, and a second priority lien on ABL collateral. The company also will have a $50 million ABL facility, secured by receivables and inventory. All other debt and non-debt liabilities are unsecured obligations of Wausau. The senior secured loan is rated B2 in line with the company's corporate family rating, due to its effective relative seniority within the company's capital structure (behind the ABL revolver but ahead of senior unsecured debt).
The SGL-3 liquidity rating indicates adequate liquidity supported by approximately $6 million in cash as of March 2014, and almost full availability expected under the new $50 million revolving credit facility maturing in 2019. The company does not face any significant near term debt maturities. A maximum consolidated total leverage ratio is the only expected financial test requirement under the credit facility. We expect Wausau will remain in compliance over the near term. The company's fixed assets are encumbered.
The stable rating outlook reflects our expectation of steady metrics, with Debt/ EBITDA tracking in the 4x range.
Ratings could be upgraded if free cash flows were expected to be sustainably positive, and Debt/ EBITDA were maintained at 4x or below.
Ratings could be downgraded if liquidity were to weaken, free cash flows were persistently negative, or if Debt/ EBITDA were expected to exceed 5x.
The principal methodology used in this rating was Global Paper and Forest Products Industry published in October 2013. 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.
Wausau Paper Corp. (Wausau) manufactures, converts, and sells a complete line of towel and tissue products that are marketed along with soap and dispensing systems for the commercial and industrial away-from-home market. The company's headquarters is located in Mosinee, Wisconsin. At December 31, 2013, the company employed approximately 900 employees primarily at the company's two operating facilities in Harrodsburg, KY and Middletown, OH. The company's products are primarily sold within the United States and Canada. For the twelve months ended March 31, 2014 the company generated $348 million in revenues.
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