Graham Packaging's new $700 million credit facility and proposed $100 million offering of senior secured notes have garnered speculative-grade ratings as both Standard & Poor's andMoody's Investors Service are pinning weight on the company's planned initial public offering. S&P has assigned a B rating to the credit facility and a CCC+ rating to the notes, while Moody's has assigned corresponding ratings of B2 to the credit and Caa1 to the notes.
The new financing will improve the York, Pa., company's liquidity and extend its debt maturities, according to S&P. Furthermore, the rating agency has placed the deals on CreditWatch with positive implications, pending the completion of the company's IPO. Proceeds from the IPO are earmarked to repay approximately $200 million in debt. S&P also looks for the recapitalization plan to reduce the company's pro-forma debt-to-EBITDA ratio from six times to five times and generate modest free cash flows after four years in negative territory.
The B2 rating from Moody's takes into account the absence of tangible asset coverage, while the Caa1 rating reflects the contractually subordinated nature of the notes. In addition, the rating agency cited high leverage, weak free cash flow and modest coverage of interest expense as negative credit issues. Moody's, however, noted that Graham Packaging should have adequate liquidity through the reduction of total debt with IPO proceeds and full availability under the revolving portion of its new facility.
The new loan is split into a $550 million "B" term loan and a $150 million revolver, both priced at LIBOR plus 21/ 2%. Pricing on the "B" loan is a bit better than that of the company's current institutional tranches, which are priced at LIBOR plus 3%. Deutsche Bank provided the facility, which is currently in syndication (LMW, 6/17). Calls to John Hamilton, cfo of Graham Packaging, were referred to a spokesman, who declined to comment.