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S&P: Rock-Tenn on watch; Smurfit-Stone on positive watch
Standard & Poor's said the ratings on Rock-Tenn Co., including the BBB corporate credit rating, remain on CreditWatch, where they were placed with negative implications in January.
The ratings on Smurfit-Stone Container Corp., including the BB- corporate credit rating, remain on CreditWatch with positive implications.
The CreditWatch listings followed news that Rock-Tenn has agreed to acquire Smurfit-Stone, S&P said.
Under terms of the agreement, Rock-Tenn is to acquire Smurfit-Stone for about $5 billion, which includes about $700 million of Smurfit-Stone's net debt and $700 million of assumed pension liabilities, the agency said.
In addition, the aggregate equity consideration, consisting of 50% cash and 50% Rock-Tenn stock, is valued at $35 per share of Smurfit-Stone common stock, S&P said.
Rock-Tenn has received a financing commitment of about $3.7 billion to fund the transaction.
The commitment is structured as a senior credit facility, including a $1.2 billion proposed revolving credit facility, a $1.25 billion proposed term loan A and a $1.25 billion proposed term loan B.
The company also intends to refinance Smurfit-Stone's existing term loan, which had about $1.2 billion outstanding as of Dec. 31.
Therefore, S&P said it expects to withdraw all of Smurfit-Stone's ratings upon completion of the proposed transaction.
Based on an analysis, S&P said it has determined that if the acquisition is completed as currently proposed, and market conditions remain in line with expectations, it will likely lower the corporate credit rating on Rock-Tenn to BBB- from BBB.
The transaction denotes a significant increase in Rock-Tenn's leverage, which was about 2.1x in 2010, the agency said.
Nevertheless, the increased leverage and integration risks given the size of the transaction is somewhat mitigated by the merged company's generally good ability to generate cash flow, S&P added.
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