Moody's cuts Caraustar

Moody's Investors Service said it downgraded Caraustar Industries, Inc.'s corporate family and probability-of-default ratings to Caa1 from B2 and its $190 million 7 3/8% notes due June 1, 2009 and $29 million 7¼% notes due May 1, 2010 to Caa2 (LGD4, 69%) from B3.

The outlook is stable.

The agency said the downgrade reflects the continued deterioration in Caraustar's earnings and cash flow as price increases in the company's key raw materials, particularly old corrugated containers, have outstripped the company's ability to realize paperboard price increases; Caraustar's joint venture interest in gypsum facing producer Premium Boxboard Ltd. has underperformed due to the downturn in the U.S. housing industry; and the company's liquidity situation is poor, with little cash on hand and only $26 million of available drawings under its revolver as of the end of the first quarter.

Moody's believes that Caraustar will be unable to realize price increases sufficient to offset continued high and volatile costs for old corrugated containers and other raw materials and that the company's cushion of operating cash flow and available liquidity to cash funding requirements will be narrow.

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