Moody's rates Covalence Specialty loan Ba3

Moody's Investors Service said it assigned a Ba3 rating to the proposed $300 million senior secured term loan C of Covalence Specialty Materials Corp., which recently announced that it is replacing its existing $175 million first-lien revolver and $350 million first-lien term loan B with a new $200 million asset-backed revolver and a $300 million term loan C. The outlook is stable.

The asset-backed revolver and term loan C also have first liens on all assets, but differ from the prior structure in that collateral comprised of accounts receivable and inventory would first be applied to the asset-backed revolver and collateral comprising all other assets would first be applied to the term loan, the agency said.

The company's high financial leverage and modest interest coverage weigh on the ratings, according to Moody's. Pro forma for the proposed transaction and adjusted for operating leases and pension obligations, adjusted total debt to EBITDA of about 4.8x, adjusted free cash flow to total debt in the range of 5% to10%, and EBIT interest coverage of less than 2x all are reflective of the current B1 corporate family rating.

The ratings are supported by the company's operating profitability and competitive profile, the agency said.

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