OREANDA-NEWS. S&P Global Ratings said today that it has affirmed its 'B' corporate credit rating on U. S.-based packaging company Coveris Holdings S. A. The outlook remains stable.

At the same time, we affirmed our 'B' issue-level rating on the company's first-lien term loan facilities, which include the proposed incremental $350 million senior secured term loan. The '3' recovery rating remains unchanged, indicating our expectation of meaningful (50%-70%; lower end of the range) recovery in the event of a payment default.

We also affirmed our 'B-' issue-level rating on Coveris' 7.875% senior unsecured notes due 2019. The '5' recovery rating remains unchanged, indicating our expectation for modest recovery (10%-30%; upper half of the range) in the event of a payment default.

We expect the company to use the proceeds from the incremental term loan to repay its senior unsecured notes due 2018 and pay down the outstanding borrowings under its ABL revolver. We expect to withdraw our ratings on the unsecured notes once they have been repaid.

With annual revenue of about $2.7 billion, Coveris manufactures flexible and rigid plastic and paper packaging for the food, beverage, agriculture, and consumer products markets. The company's plastic and paper packaging segments represent roughly 77% and 23%, respectively, of its 2015 revenue. "Our fair assessment of Coveris' business risk profile reflects our expectation that the company will enjoy increased geographic and product-line diversity as it continues to focus on the relatively stable food, beverage, agriculture, and consumer products end markets," said S&P Global credit analyst Christopher Corey. "We also expect that the company will continue to benefit from the ongoing cost-reduction and procurement and manufacturing improvements that are part of Sun Capital Partners Inc.'s consolidation of its packaging businesses."

The stable outlook on Coveris reflects our expectation that the company will sustain adequate liquidity and improve its credit measures as its restructuring costs taper and it realizes continued synergies and operational improvements.

We could lower our ratings on Coveris if the company's operating performance weakened significantly, its restructuring costs remained elevated, or it pursued a large, debt-funded dividend distribution or acquisition. Specifically, if such a scenario caused the company's debt-to-EBITDA metric to weaken to about 7x or more without the prospect for a quick recovery, we could lower our ratings.

While unlikely in the next 12 months, we could consider upgrading Coveris if the company were able to sustainably improve its credit measures--with a debt-to-EBITDA metric of less than 5x--and commit to maintain a less aggressive financial policy.