Moody’s affirms PLZ Corp’s outlook as “stable”

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Moody's Ratings (Moody's) has affirmed PLZ Corp's outlook as stable, affirming its B3 corporate family rating (CFR), B3-PD probability of default rating (PDR) and B3 backed senior secured first lien bank credit facilities rating.
"The ratings affirmation reflects PLZ's position as a leading provider of specialty aerosol and liquid products in the relatively stable consumer products market," said Eoin Roche, Moody's vice president senior credit officer. "Moody's expects PLZ to maintain good liquidity with FCF-to-debt in the low single-digits."
The B3 CFR reflects high financial leverage, modest scale and weak credit metrics, according to Moody's.
As of September last year, Moody's Ratings adjusted debt-to-EBITDA was well in excess of 8x.
This high leverage limits financial flexibility and raises concerns about the company's looming capital structure, the majority of which, becomes due in 2026, according to the organisation.
Moody's Ratings also has concerns about PLZ's quality of earnings, which have historically included multiple add-back items to earnings, it added.
PLZ benefits from its exposure to relatively stable consumer products endmarkets. The rating also benefits from the company's entrenched market position with long-standing customer relationships, low capital needs and diverse customer base.
The stable outlook reflects 'Moody's expectations of a relatively stable operating environment and continued growth, albeit modest, in earnings and free cash flow'.
Moody's views PLZ's liquidity to be good, it said.
The company had a cash balance of around $38 million (€35.5 million) as of September 2023.
PLZ has a relatively short-dated capital structure with approximately $1.1 billion (€1 billion) of first lien term loan debt becoming due in 2026.
Amortisation on term debt is manageable at around $11 million (€10.2 million) per annum.
Moody's anticipates positive free cash flow in 2024 with FCF-to-debt in the low single-digits.
External liquidity is provided by a $100 million (€93.5 million) revolver that expires in April 2026.
The facility was undrawn as of September 2023.
The revolver contains a springing first lien net leverage ratio of 8.1x, that comes in effect if borrowings under the facility exceed 35%.
Moody's expects the company to have ample cushion with respect to its financial covenant.
Factors that could lead to a rating upgrade or downgrade
Ratings could be upgraded if debt-to-EBITDA is sustained below 6x with free cash flow-to-debt sustained at or approaching the mid-single digits, said the agency.
Ratings could be downgraded if debt-to-EBITDA remains above 7x or if PLZ has negative free cash flow.
The ratings could also be downgraded if PLZ does not refinance its debt well in advance of its 2026 maturities or if the company's quality of earnings does not improve.

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