Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

Hart's Reynolds Group has rating cut to B3 by Moody's

Hart's Reynolds Group has rating cut to B3 by Moody's

By Paul McBeth

Sept. 7 (BusinessDesk) - Reynolds Group Holdings’ credit rating was cut one notch as the packaging company owned by New Zealand billionaire Graeme Hart works to integrate last year's US$4.5 billion acquisition of Graham Packaging and keep its US$18 billion of debt in check.

Moody's Investors Service cut Reynolds Group's corporate family rating (CFR) further below investment grade to B3 from B2, citing "an expectation that future improvement may proceed more slowly than originally projected." Moody's typically uses a CFR rating to cover all of the financial obligations of a speculative-grade corporate issuer.

The rating's outlook was stable on the likelihood the credit metrics will improve. The soft economy and production inefficiencies at the Graham Packaging unit are expected to "drag on operating performance over the intermediate term."

The company's "credit metrics were stressed from a series of debt financed acquisitions and had little room for any negative variance in operating performance," Moody's said. The B3 rating reflects Reynolds Group's "weak pro-forma credit metrics, integration risk and limited operating history for the combined entity."

Earlier this year, Reynolds Group chief executive Tom Degnan told investors the company's level of debt was probably enough and that any future acquisitions wouldn't be of the US$5 billion size like the Graham Packaging and Pactiv takeovers in recent years.

The rising level of debt put rating agencies Standard & Poor’s and Moody’s on edge last year, with both signalling the debt-funded purchase of Graham Packaging was stretching Reynolds Group’s ability to keep on top of interest repayments. The Graham Packaging deal came just one year after the US$6.5 billion takeover of Illinois-based Pactiv.

In July, ratings agency S&P said it didn't expect to downgrade packaging companies, with "slow economic growth, stable consumer spending, and a modest improvement in the unemployment and household savings rates," supporting the sector. It has issued Reynolds with a B-plus rating on a negative outlook.

Moody's said the new rating also reflected the long wait Reynolds Group faces when passing through rising costs of raw materials to its customers, the concentration of sales in certain segments and its financial aggressiveness.

Hart's ownership was also tagged as a reflection of the rating, with Moody's citing Reynolds Group's "complex capital and organisational structure" owned by a single person.

The New Zealand billionaire started building his packaging empire in 2006 with his takeover of Carter Holt Harvey, adding Alcoa’s packaging business the following year. He later bought International Paper’s beverage packaging unit and Swiss company SiG.

Moody's said the company has strong brands and market positions some segments, and its businesses have a "history of strong execution and innovation prior to their acquisition" with existing management teams largely retained.

Reynolds Group's rating could get upgraded if it can get its debt to earnings before interest, tax, depreciation and amortisation to less than 6.3 times from its current 6.5 times, reduce its pre-tax earnings to at least 1.4 times interest costs, and improve its fresh cash flow in relation to its debt.

Last month, the packaging company reported a profit of US$8 million in the six months ended June 30, turning around a loss of US$104 million a year earlier, as revenue climbed 32 percent to US$6.9 billion with the Graham acquisition. The group's finance costs advanced 14 percent to US$801 million.

On an adjusted ebitda measure, which strips out one-off and unrealised costs, the company's earnings rose to US$1.25 billion from US$893 million.

(BusinessDesk)

© Scoop Media

 
 
 
Business Headlines | Sci-Tech Headlines

 




Civil Contractors: Massive Rebound In Civil Construction Business Confidence

New Zealand’s civil construction industry is riding a massive rebound in post-pandemic business confidence – but this may be undermined by skills shortages, which continue to be the industry’s number one challenge... More>>



Energy: Feeling Our Way Towards Hydrogen - Tina Schirr

Right now hydrogen is getting a lot of attention. Many countries are focusing on producing hydrogen for fuel, or procuring it, or planning for its future use... More>>

Maritime Union: Calls For New Zealand Shipping To Resolve Supply Chain Crisis

The Maritime Union says there needs to be innovative responses to ongoing shipping congestion. Maritime Union of New Zealand National Secretary Craig Harrison says it is essential that New Zealand develops its own shipping capacity... More>>


Housing: New Home Consents Continue To Break Records

A record 44,299 new homes were consented in the year ended June 2021, Stats NZ said today. “The annual number of new homes consented rose again in the June 2021 year, the fourth consecutive month of rises,” construction statistics manager Michael Heslop said... More>>


Real Estate: June Home Transfers Remain High
There were 44,517 home transfers in the June 2021 quarter, the highest June quarter figure since 2016, Stats NZ said today. The number of home transfers was very similar to the March 2021 quarter and was up 18,252 from the June 2020 quarter... More>>



Statistics: Household Saving Falls In The March 2021 Quarter

Saving by New Zealanders in the March 2021 quarter fell to its lowest level in two years after rising sharply in 2020, Stats NZ said today. Increases in household spending outpaced income growth, leading to a decline in household saving from the elevated levels that prevailed throughout 2020... More>>

ALSO: