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Moody's rates U.S. Can loan
Moody's Investors Service said it assigned a B2 rating to the proposed $315 million first lien credit facility for United States Can Co. Concurrently, Moody's lowered the ratings of U.S. Can's existing $125 million 10.875% second lien notes due 2010 to Caa1 from B3 and $175 million 12.375% senior subordinated notes due 2010 to Caa2 from Caa1.
The outlook remains negative, reflecting the urgency for consistent improvements in the company's credit profile throughout the near-term, notably sustained liquidity cushion and reduced financial leverage.
Proceeds from the proposed term B loan are intended to reduce outstandings under the existing revolver, to refinance other senior debt, and to pay related fees and expenses. The proposed transactions also intend to reduce the amount of the committed revolver to $65 million from $110 million.
Moody's said the ratings reflect the cumulative effects of weak performance in U.S. Can's food can business (roughly 20% of consolidated revenue), rising costs across its raw materials (primarily steel and plastic resin), annualization of lost contracted business and targeted customer rationalizations, and continued poor results from its Custom and Specialty business (roughly 7% of consolidated revenue).
While recognizing that U.S. Can has made strides toward stabilizing its operations, the ratings continue to reflect financial performance that is below expectations. It is likely that additional cost saving opportunities will be modest relative to those previously achieved. Therefore, there is likely to be pressure to maintain margins with improved product mix and to a lesser extent with price/volume increases.
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