Blog: Greif Luxembourg Finance SCA — Moody’s revises Greif’s outlook to stable; affirms all ratings – Yahoo Finance

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Rating Action: Moody’s revises Greif’s outlook to stable; affirms all ratingsGlobal Credit Research – 28 Apr 2021New York, April 28, 2021 — Moody’s Investors Service, (“Moody’s”) affirmed Greif, Inc.’s Ba2 corporate family rating and its Ba2-PD probability of default rating and revised the rating outlook to stable from negative. Moody’s also affirmed all instrument ratings (see the list below) and upgraded the Speculative Grade Liquidity Rating to SGL-1 from SGL-2.”The stable outlook reflects Moody’s view that earnings and credit metrics will improve in 2021 as the global economy recovers from the coronavirus pandemic and the company continues to pay down debt from free cash flow and the proceeds of the completed timberland sale,” said Anastasija Johnson, senior credit officer at Moody’s.Affirmations:..Issuer: Greif, Inc….. Corporate Family Rating, Affirmed Ba2…. Probability of Default Rating, Affirmed Ba2-PD….Senior Unsecured Regular Bond/Debenture, Affirmed B1 (LGD5)..Issuer: Greif Luxembourg Finance SCA….Gtd. Senior Unsecured Regular Bond/Debenture, Affirmed Ba3 (LGD5)Upgrades:..Issuer: Greif, Inc…..Speculative Grade Liquidity Rating, Upgraded to SGL-1 from SGL-2Outlook Actions:..Issuer: Greif, Inc…..Outlook, Changed To Stable From Negative..Issuer: Greif Luxembourg Finance SCA….Outlook, Changed To Stable From NegativeRATINGS RATIONALEGreif’s Ba2 rating reflects the company’s scale, leadership market positions in most of its products and broad geographic and operational diversity. While the company serves diverse end markets, the majority of them are cyclical and were impacted by the coronavirus pandemic. Greif generates approximately 60% from global industrial packaging, including steel, fiber and plastic drums and rigid and flexible containers, and the rest from paper packaging and services (land management contributes marginal sales and EBITDA, but timberland holdings can be used as an alternative source of liquidity). The credit profile is also constrained by slow deleveraging after a transformative acquisition in 2019, although management has completed asset sales to lower debt and held dividends flat while earnings underperformed.The credit profile incorporates our expectation that performance will improve in 2021 as the global economy recovers from the coronavirus pandemic and management pursues price increases to offset raw material and other cost inflation. We expect strong growth in global industrial packaging as economy improves and continued growth in paperboard sales and packaging driven by continued e-commerce demand. Margins will be pressured by higher steel, resin and recycled fiber, freight and energy costs, but completed cost reduction in the global packaging segment and announced price increases in the paper segment, should offset some of these increases. We expect the company to continue to generate free cash flow and apply it to debt reduction along with proceeds from asset divestitures. We expect leverage to decline to about 4.0x in 2021 and 3.7x in 2022Greif’s SGL-1 speculative grade liquidity rating indicates a very good liquidity profile. The company had approximately $101 million of cash on hand, some of which is held overseas, but can be repatriated. Greif’s liquidity is supported by $420.9 million of availability under its $800 million revolving multi-currency senior secured credit facility which expires on February 11, 2024. The company has entered into a delayed draw term loan to pay down the Euro 200 million 7.375% senior notes due in July 2021. Greif also maintains a $250 million domestic trade accounts receivable securitization facility and trade receivables securitization facilities in Europe (EUR 100 million), which tend to be renewed on an annual basis. The secured credit facilities have maximum leverage and minimum interest coverage covenants. The leverage covenant steps down to 4.25x in January 2022, but the company is expected to remain in compliance with its covenant. The credit facilities are not secured by Greif’s timberland holdings (approximately 175,000 acres following the recent sale to Weyerhaeuser), so the company has a meaningful source of alternate liquidity (between $300-$325 million of estimated market value).The stable outlook reflects expectations that earnings and leverage metrics will improve in 2021.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe rating could be upgraded if the company sustainably improves credit metrics with the context of a stable operating and competitive environment. An upgrade would be contingent upon the maintenance of sound financial policies. Specifically, the rating could be upgraded if debt/EBITDA is below 3.5x, EBITDA/Interest is above 5.8x and free cash flow to debt is above 8%.The ratings could be downgraded if there is deterioration in the competitive or operating environment. Specifically, the rating could be downgraded if debt to EBITDA remains over 4.2x , EBITDA to interest declines below 4.8x and free cash flow falls below 6%.We view companies that manufacture packaging materials as having moderate environmental risk, that is broadly manageable. Moody’s believes the company has established expertise in complying with these risks and has incorporated procedures to address them in its operational planning and business models.We view Greif as well positioned to adjust to increasing regulatory and consumer focus on environmental issues, including improving recyclability and reducing waste, due to its diversified product mix, including recycled and virgin fiber.Greif is a publicly-listed industrial packaging company, but the Dempsey family controls approximately 70% of the voting rights and has effectively 3 out of 10 board seats. The company has a conservative net leverage target 2-2.5x and has pledged to use free cash flow to reduce debt, while maintaining the current level of dividends until the company reaches its leverage target. The company has delayed the time when it expects to reach its net leverage target to 2023. The company has grown both organically and through acquisitions and we would expect it to continue to pursue bolt on acquisitions.The principal methodology used in these ratings was Packaging Manufacturers: Metal, Glass and Plastic Containers Methodology published in September 2020 and available at https://ift.tt/3nuoO3s. Alternatively, please see the Rating Methodologies page on http://www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://ift.tt/3r4KzHE ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on http://www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ift.tt/349xDIr disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ift.tt/3aPfqCt Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on http://www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on http://www.moodys.com.Please see http://www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on http://www.moodys.com for additional regulatory disclosures for each credit rating. Anastasija Johnson VP – Senior Credit Officer Corporate Finance Group Moody’s Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Glenn B. Eckert Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody’s Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY’S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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