Fitch drops Kappa

Fitch Ratings said it downgraded Kappa Beheer BV's senior subordinated notes to B- from B, including its €370 million 10.625% notes, $100 million 10.625% notes, €145 million 12.5% notes and €95 million 10.625% notes.

At the same time the agency said it downgraded parent company Kappa Packaging BV's senior unsecured rating to B from B+ and the rating for its senior secured debt to BB- from BB. The short-term rating is affirmed at B.

The outlook remains stable.

"A difficult operating environment has taken its toll on Kappa's margins in the last few quarters and the company's cash flow generation has suffered," said Michelle De Angelis, associate director in Fitch's Leveraged Finance Group.

"Although Kappa still had €102 million of cash on balance-sheet at Q105, increasing interest and debt amortization payments are unlikely to be met from internally generated cash flow in 2005."

The ratings reflect Kappa's increased leverage and the need to generate high levels of cash flow in order to meet the growing mandatory debt interest and amortization payments, Fitch said.

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