June 11 (The following statement was released by the rating agency)
Fitch Ratings has placed Smurfit Kappa Acquisitions and Smurfit Kappa Treasury
Funding's senior secured notes on Rating Watch Negative (RWN) on the expected release
of security. Smurfit Kappa Group's (SKG) Long-term foreign currency Issuer Default
Rating (BB/Stable) is not affected by this rating action. A full list of the bonds affected by
the rating action is at the end of this release.
SKG has announced that it is in discussion with its banks about the refinancing
of the outstanding secured credit facility with a new unsecured bank facility.
The release of the security on the credit facility will also trigger the release
of the security on all the outstanding bonds issued by the controlled companies
Smurfit Kappa Acquisitions and Smurfit Kappa Treasury Funding.
Fitch currently rates the secured notes one notch higher than SKG's IDR,
incorporating the benefit from the security and the collateral. The release of
the security on the bonds would imply that the one-notch uplift was no longer
justified and Fitch would rate the unsecured notes at the level of the IDR. For
this reason, Fitch has placed the secured notes on RWN. The completion of the
refinancing and the release of the security will result in the resolution of the
RWN and the equalisation of the instrument ratings with the IDR.
KEY RATING DRIVERS
-Improved Debt Profile
Fitch views the refinancing as positive, as it will complete the transformation
of the group's debt structure from a "leveraged finance" style into a more
simple structure. After the refinancing, all long-term debt will be unsecured
and will continue to rank pari passu. Although representing a credit positive,
the refinancing by itself is not enough to drive an immediate positive rating
action on the IDR. Fitch will review SKG's ratings in the next few weeks, as
part of its normal review cycle.
SKG continues to show steady deleveraging and improvement in its credit metrics.
Funds from operations (FFO) gross leverage improved in 2012 to 3.9x from 4.3x in
2011. Fitch expects this metric to further improve to 3.6x in 2013,
notwithstanding the expected increase in capex to a normalised level of 95%-100%
of depreciation. SKG's credit metrics have ample margins within the current
Positive: Future developments that could lead to positive rating actions
- The continuation of the current path in debt reduction and the improvement in
credit metrics, with FFO adjusted leverage improving to below 3.5x, free cash
flow (FCF)/revenue remaining above 1% and FFO interest coverage increasing to
Negative: Future developments that could lead to negative rating action include:
- A material deterioration in the operating performance, with sustained negative
- A re-leveraging of the group, due to either deterioration in trading
conditions or to M&A activity, with FFO adjusted leverage worsening to above
FULL LIST OF RATING ACTIONS:
The following instruments' 'BB+' ratings have been placed on RWN:
Smurfit Kappa Acquisitions
EUR500m notes due 2017
EUR200m and USD300m notes due 2018
EUR500m notes due 2019 EUR400m and EUR250m notes due 2020
Smurfit Kappa Treasury Funding
USD292m notes due 2025