Graphic Packaging slashes debt by $149 million during third quarter

By Lisa Kerner

Charlotte, N.C., Oct. 30 - Graphic Packaging Holding Co. "delivered another solid quarter in a challenging operating environment," according to president and chief executive officer David Scheible.

During an earnings call on Wednesday, Scheible predicted pricing would turn positive and remain positive through 2014 and beyond.

"We remain committed to generating cash and reducing our debt levels and expect to be near the top end of our 2.5 to 3 times net leverage target by the end of 2013," he said.

The company raised its net debt reduction target to $300 million, and operating cash flow was "strong" in the quarter at $160 million, according to chief financial officer Dan Blount.

"Due to our refinancing activities earlier this year, interest expense in the quarter was down 10% versus last year," he said.

"We executed an amend-and-extend on our bank loan facility, reducing rates by 25 basis points. We also added 18 months to the maturity and are providing ample liquidity to our European and Japanese businesses through these facilities."

Graphic Packaging essentially invested $3 million for the amendment to save $4 million in annual interest expense.

"Overall if you look at our entire debt portfolio, we have an average effective borrowing rate of 3½%," Blount said. In addition, the company has hedged Libor into 2016 at 75 bps.

The company ended the third quarter with a net leverage ratio of 3.23 times and expects to end 2013 with a net leverage ratio of 3 times.

Net debt at quarter's end was $2.1 billion, a decrease of about $149 million from the prior quarter.

Domestic liquidity was about $755 million on Sept. 30, including cash and cash equivalents and the undrawn availability under the company's $1 billion U.S. revolving credit facility.

Net interest expense was $23.5 million in the third quarter of 2013, compared with $26.1 million in the third quarter of 2012. Graphic Packaging attributed the decrease to its issuance of new 4¾% senior notes, the proceeds of which were used to redeem higher-coupon 9½% notes during the second quarter of 2013.

The Marietta, Ga.-based paperboard packaging company's net sales were up 5.3% year over year at about $1.12 billion, while adjusted EBITDA rose slightly to $175 million.

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