Graphic Packaging eyes ‘leverage neutral’ purchase of consumer packaging business

By Devika Patel

Knoxville, Tenn., Oct. 24 – Graphic Packaging Holding Co. will complete a “leverage neutral” acquisition by integrating its business with International Paper Co.’s North American consumer packaging business.

The North American consumer packaging business is valued at $1.8 billion.

The partnership will assume $660 million of International Paper debt through assuming an International Paper loan, which matures in about five years.

“What’s likely to occur is a term loan A will be coming our way that tends to be in a similar structure as what you see on the $2.5 billion that we have with our senior secured,” president and chief executive officer Michael P. Doss said on the company’s conference call announcing the deal on Tuesday.

“I would think of it as a $650 [million] coming over and a structure very similar to that tranche that we have.

“There won’t be a bond coming along with it so the interest expense that you’d see that we have today on that – low threes,” Doss said.

For its part, International Paper said in a press release that it plans to use the $660 million in cash proceeds from the loan assumption to pay down existing debt.

On Monday it entered into a commitment letter for a debt financing of up to $660 million that will be assumed by the new partnership.

Bank of America, NA, Merrill Lynch, Pierce, Fenner & Smith Inc., BNP Paribas and BNP Paribas Securities Corp. provided the commitment.

Interest will initially vary from Libor plus 100 basis points to Libor plus 175 bps, depending on the credit rating. On closing of the transaction with Graphic Packaging, the credit facility will be transferred and the partnership’s borrowing cost will be Libor plus 125 bps to Libor plus 200 bps, depending on leverage.

Graphic Packaging’s Doss said that the deal will not affect the company’s leverage.

“The transaction is leverage neutral, which give us the flexibility to drive growth organically and through future acquisitions,” Doss said.

Capital allocation priorities will not change as a result of this deal.

“I think overall the balanced approach to capital allocation that we have been driving will really maintain itself,” senior vice president and chief financial officer Stephen R. Scherger said on the call.

“I think you would expect to see us to continue to put capital to work very prudently in the business.

“We’ll have all of the levers available to us, no change there,” Scherger said

The company does not expect to be hindered in its growth.

“Our balance sheet, on a pro forma basis, at 2.8x levered still gives us all kinds of flexibility to continue to pursue our other objections and ambitions as we grow this company,” Doss said.

The transaction will be structured as a partnership. Graphic Packaging Holding will own 79.5% percent of the partnership and will be the sole operator.

The transaction is expected to close in early 2018.

Graphic Packaging is a Marietta, Ga.-based provider of paperboard packaging.

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