S&P: Portola outlook negative

Standard & Poor's said it lowered Portola Packaging Inc.'s $180 million 8¼% senior unsecured notes to CC with a recovery rating of 6 from CCC- with a recovery rating of 5 and affirmed the CCC corporate credit rating.

The outlook is negative.

The agency said the downgrade on Portola's senior unsecured notes reflects the increase of secured debt in the capital structure resulting from the refinancing of the revolving credit facility through the issuance of $15 million in second-lien term notes.

Although the refinancing of the revolver improves the company's liquidity and financial flexibility in the near term, S&P said it remains concerned over the difficult operating environment Portola faces in the next few quarters driven by rising raw material costs, a slowdown in the economy and the timing related to the realization of restructuring benefits.

S&P said the company's defensible niche positions in end markets and favorable geographic diversity only partially offset Portola's highly leveraged financial profile, constrained liquidity, modest-size operations and narrow product line.

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