Moody's warns of refinancing trouble for Clondalkin
PACKAGING group Clondalkin could find it increasingly difficult to refinance over €400m of debt that matures this time next year as recovery in its operating performance is slower than expected, according to ratings agency Moody's.
The agency says that Clondalkin, which is owned by private equity giant Warburg Pincus, needs a "more sustainable financial profile".
Yesterday, Moody's downgraded Clondalkin's probability of default rating.
The agency said that it initiated the downgrade because of liquidity pressure facing Clondalkin as €416m in senior secured notes come up for maturity in December 2013.
"Clondalkin could be challenged to implement a successful refinancing, despite currently benign high-yield capital market conditions," Moody's warned.
"Clondalkin's operating profitability in 2012 continues to be challenged by weak macroeconomic demand conditions in Europe and supply chain challenges in North America," added the agency. "These have prompted a slower than expected recovery in 2012 despite incremental profitability from its recent printed components acquisition and benefits from synergies and restructuring measures."
Clondalkin, which is headed by Norbert McDermott, is a leading packaging maker. In the 12 months to the end of September, it generated sales of €949m, with two-thirds coming from Europe and the remainder in North America.
Its customers include firms such as drug companies and consumer brands such as Pernod Ricard's Jacob's Creek.
Moody's stressed that Clondalkin has a "solid business profile" and that the company has "good substrate diversity" and a "strong market position in several niche markets with solid geographical diversification".
However, Moody's placed the company's probability of default and family rating on a negative outlook.
It cautioned that a stabilisation of the outlook requires visibility on Clondalkin's execution of an orderly refinancing, including using some of its cash balance to reduce debt in case of a refinancing exercise.
That would lead "to a reduction in gross leverage, coupled with a recovery in operating profitability, that would leave Clondalkin with a solid liquidity position and a more sustainable financial profile," said Moody's.
It affirmed Clondalkin's B3 corporate family rating, but said it had done so based on the assumption that the company will support an "orderly refinancing" by "various sources", including the disposal of certain parts of the business and introducing new asset-based borrowing arrangements, such as the securitisation of receiveables.