Moody’s rates Caraustar facilities Ba2, B2

Moody's Investors Service said it affirmed the B2 corporate family rating and B2-PD probability of default rating of Caraustar Industries, Inc. and revised the outlook to stable from negative.

The agency also assigned a Ba2 rating to the new $100 million senior secured asset-based revolving facility due December 2021, which is expected to be undrawn at close, and a B2 rating to the new $860 million senior secured term loan due in 2022.

The transaction is leverage neutral as the proceeds from the term loan will be used to refinance existing credit facilities.

Moody’s said it views the transaction as a modest credit positive as it extends debt maturities by three years and lowers the company's interest cost. It will withdraw the ratings on the existing facilities once the transaction closes.

The outlook revision reflects the company's improved free cash flow generation despite headwinds in the North American paperboard market and expectations that Moody's adjusted leverage will track toward 5 times over the next 12 months, the agency added.

"Caraustar's improved free cash flow and debt reduction position the company more solidly in the B2 rating category," Moody's analyst Anastasija Johnson said in a news release.

"We also expect earnings improvement in 2017 due to completed facility consolidation, ramp-up of coated recycled board production at the Sweetwater mill and last year's LA Paperbox acquisition."

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