S&P: Appvion Inc. Downgraded To 'B-' On Sustained High Leverage, Outlook Stable; Second-Lien Note Ratings Lowered To 'CCC'
At the same time, we lowered our issue-level rating on the company's second-lien notes to 'CCC' from 'CCC+'. The '6' recovery rating remains unchanged, indicating our expectation for negligible (0%-10%) recovery in the event of a payment default.
Additionally, we revised our recovery ratings on Appvion's first-lien debt to '1' from '2', indicating our expectation for very high (90%-100%) recovery in the event of a payment default. Our 'B+' issue-level ratings on the debt remain unchanged to reflect the improvement in their recovery prospects.
"The downgrade reflects that Appvion's credit measures have weakened materially over the past year, including its adjusted leverage metric of more than 13x," said S&P Global credit analyst Chiza Vitta. "While the sustained turnaround we had been anticipating a year ago appears to be underway, in our view, it would now require more than a year for the company to improve its credit profile such that it would be commensurate with a 'B' rating."
The stable outlook on Appvion reflects our belief that the company will continue to sustain credit measures that are appropriate for the current rating over the next year. While we anticipate that the company's adjusted debt leverage will improve, we don't expect that it will meet our triggers for an upgrade in the next year. Furthermore, we do not foresee the company's liquidity situation improving in that time frame without a change in its capital structure.
We could lower our ratings on Appvion if we believe that the capital structure is unsustainable, or if we expect that it will engage in an exchange offer or debt restructuring. This would most likely occur if the company's interest coverage declines and is expected to remain below 1x, which could happen if the volume growth in its thermal papers segment falters.
We could raise our ratings on Appvion if its adjusted debt leverage falls below 8x, particularly if we reassess the company's liquidity position as adequate. This could occur if the company is able to sustain the recent improvement in its operating performance and successfully execute on the various strategic and cost-cutting initiatives that are underway.