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February 4, 2008 |
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TREOFAN HOLDINGS: S&P Holds CCC+ Ratings on New Commitment Standard & Poor's Ratings Services affirmed its 'CCC+' corporate credit ratings on Germany-based flexible packaging producer Treofan Holdings GmbH and its operating subsidiary Treofan Germany GmbH & Co. KG. At the same time, the ratings were removed from CreditWatch where they were placed with negative implications on Dec. 7, 2007. The outlook is negative. The 'CCC+' issue rating on Treofan Germany's EUR170 million subordinated second-lien notes was also affirmed and removed from CreditWatch with negative implications. The recovery rating on the issue has been lowered to '4' from '3', indicating average (30%-50%) recovery prospects for noteholders. "The rating affirmation reflects Treofan's recently obtained access to an incremental commitment of EUR20 million to an existing EUR60 million available under a revolving credit facility. This will alleviate liquidity pressure over the immediate term," said Standard & Poor's credit analyst Jacob Zachrison. Nevertheless, the company's ability to improve weak earnings over the next 12 months is essential at the current rating level. In addition, operational challenges, high cash interest costs, only modest flexibility in curtailing capital spending, and cash outflows related to a new restructuring program, could pressure liquidity and tighten covenant headroom over the near term if operating performance fails to improve. The ratings continue to reflect the group's aggressively leveraged financial risk profile and strong competition in the fragmented polypropylene film industry. They also reflect the group's weak track record of operating performance. These negative factors are tempered by the group's leading niche market positions, stemming from long-term relationships with customers and well-diversified customer and geographic bases in stable markets, including a recent expansion of its North American operations in Mexico. The negative outlook reflects our concerns that Treofan could fail to improve its very weak cash flow generation over the near term, and that the liquidity situation could tighten again. These factors could contribute to a downgrade. The outlook could be revised to stable if Treofan can improve its operating performance and liquidity position, reducing the risk of covenant breaches. |
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