S&P lowers UFS Holdings

S&P said it lowered its issuer credit rating on UFS Holdings Inc. to B- from B. The outlook is negative.

At the same time, the agency lowered its issue-level rating on the company's first-lien secured credit facilities to B (one notch above the issuer credit rating) from B+. The 2 recovery rating is unchanged, indicating an expectation of substantial (70%-90%; rounded estimate: 70%) recovery of principal in the event of a payment default.

S&P also lowered its issue-level rating on the company's second-lien term loan to CCC (two notches below the issuer credit rating) from CCC+. The 6 recovery rating is unchanged, indicating an expectation of negligible (0%-10%; rounded estimate: 5%) recovery of principal in the event of a payment default.

“The downgrade reflects our view of an increase in credit risk arising from ongoing raw material pressure on UFS's operations. We believe this pressure increases the likelihood that unexpected earnings shocks could cause a covenant breach, particularly given upcoming stepdowns in covenant levels as per the company's credit agreement,” S&P said in a news release.

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