OREANDA-NEWS. S&P Global Ratings today said assigned its 'BBB' long-term corporate credit rating to CCL Industries Inc. The outlook is stable.

At the same time, S&P Global Ratings assigned its 'BBB' issue-level ratings to the company's proposed US$300 million unsecured notes and existing unsecured US$1.2 billion revolving credit facility. The company will use proceeds from the proposed issuance to reduce revolver borrowings. Both CCL Industries Inc. and its subsidiary, CCL Industries Corp., are borrowers on the revolving facility.

Toronto-based CCL is a global company, with manufacturing facilities around the world, and is primarily involved in the manufacture of labels and containers, as well as consumer printable media products and technology-driven label solutions.

"The 'BBB' rating reflects our assessment of the company's satisfactory business risk profile and modest financial risk profile," said S&P Global Ratings credit analyst Aniki Saha-Yannopoulos.

Our satisfactory business risk assessment on CCL reflects our view of the company's position as the leading producer in the niche pressure-sensitive prime label business, exposure to stable-end markets, geographic diversity, and strong profitability compared with industry peers. Our assessment also includes what we view as some customer concentration and execution risk associated with the recent Checkpoint acquisition. CCL operates in four segments: CCL labels, which is the world's largest converter of pressure-sensitive and extruded film materials for labels (about 54% of revenues); Avery, which provides software solutions for label printing (21%); the newly acquired Checkpoint, an apparel and retail labeling segment (19%); and CCL containers, which manufactures aluminum aerosol containers (6%). The company operates about 149 facilities worldwide with about 45% of its revenues generated outside of North America.

The stable outlook on CCL reflects our view that the label producer will continue to generate and maintain credit measures that are within our expectations, namely, FFO-to-adjusted debt above 50%. The company's results should remain fairly stable (before acquisitions), since the more stable end markets should offset some of the sluggish growth in the Avery and Checkpoint segments. Similar to the Avery acquisition, we expect CCL to deliver synergies associated with its Checkpoint acquisition. We expect CCL's anticipated strong operating and free cash flow to provide financial flexibility to fund growth initiatives, such as modestly sized acquisitions.

Although we view a downgrade as unlikely at this time, we could lower the rating if CCL pursues an aggressive financial policy, using more debt than we forecast to fund large acquisitions, such that FFO-to-net debt drops to and is sustained below 35%. We could also lower the rating if adverse changes in operating conditions, such as a global economic recession or higher-than-anticipated costs, lead to weakness in operating or measures.

Even though we do not expect to raise our ratings in the next 12 months, we could raise it if we assess CCL's business risk as improving should CCL expand its product and customer diversity, similar to its larger and more diversified packaging peers, while maintaining its operating efficiency and profitability. We would expect the company to maintain its credit measures at current levels during this transition.