The new $450 million Graphic Packaging International deal, launched into the market earlier this month by Credit Suisse First Boston and Morgan Stanley, backs a company that is strong in its market but has an aggressive financial position, according to Standard & Poor's. S&P has slapped a BB rating on the credit, which refinances an existing $325 million deal. The facility is secured by substantially all of the company's assets, which should provide a material advantage to lenders, according to Pamela Rice, S&P analyst. But S&P's simulated default scenario shows that it is not clear whether the distressed enterprise value of the company would be sufficient to cover the entire loan. S&P views the company, which produces folding carton packaging for consumer goods concerns, as less vulnerable to cycles than other packaging companies. "There is fairly stable demand," Rice said. "They're not as cyclical as other paper companies." Rice explained that the company is rated on the attractiveness of its markets and its position in that market, its diversity of products, customers and geography, and also its cost position relative to competitors.
Although the company has been reducing its debt, it still remains highly leveraged with speculative ratios. Debt to EBITDA is 3.6 times, but the company has moderate capital spending needs and free operating cash flow is expected to go primarily to debt reduction. The company also will have increased financial flexibility with the new credit because it is looking at a light debt maturity schedule in the next few years.