Moody's: Plastipak outlook stable

Moody's Investors Service said it revised the outlook of Plastipak Holdings, Inc. to stable from positive and affirmed the company's B2 corporate family and probability-of-default ratings and B3 (LGD5, 77%) $250 million guaranteed senior unsecured notes due 2015.

The change in outlook reflects Moody's belief that the company could be challenged to improve credit metrics to the level necessary for an upgrade in the current economic environment. The agency said Plastipak has been negatively impacted by its concentration in sales as major customers have transitioned to self manufacturing and new packaging formats that reduced profits.

Although leverage and interest coverage are strong for the rating category, margins and free cash flow are weak and Plastipak is reliant upon transitioning to higher margin, less commoditized products in order to improve them, Moody's said. And while the company has successfully signed several contracts for higher margin custom packaging, the agency believes the transition strategy entails some risk.

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