S&P rates WEPA notes BB-, view to stable

S&P said it assigned a BB- and a 4 recovery rating to WEPA Hygieneprodukte GmbH’s proposed €550 million senior secured notes, due in seven to eight years, which will be used to refinance the capital structure.

Proceeds will be used to repay €450 million, 3.75% senior secured notes and €22 million drawn under its €125 million revolver.

The offering won’t affect WEPA’s credit metrics, S&P said.

The agency also changed the company’s outlook to stable from negative. “The outlook revision back to stable from negative reflects our expectation that WEPA will reduce its leverage to below 5.0x from 2020. This is because we observed lower input costs in 2019 and expect pulp prices to stabilize at lower levels, at least in the next 12 months,” said S&P in a press release.

Lower input costs led to an EBITDA margin of about 14% in the third quarter compared with 10.2% in the second quarter. “We expect WEPA will continue to increase its EBITDA margin but at a slower pace, since negotiations with retailers for reduced sales prices will likely occur on the expectation of lower raw material costs. Nevertheless, we now anticipate WEPA will post an adjusted EBITDA margin of close to 10.5% in 2019 and 11.5%-12.0% in 2020,” S&P said.

The agency sees the company having adjusted debt to EBITDA to about 4.5x in 2020 from about 5.2x in 2019.

The outlook is stable.

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