Moody's rates Koch Cellulose loan

Moody's Investors Service said it assigned a B1 rating to Koch Cellulose LLC's proposed $300 million seven-year guaranteed senior secured term loan B, $50 million guaranteed senior secured revolver, and $74 million letter-of-credit facility.

Moody's also assigned a B1 senior implied rating and a B2 issuer rating.

The outlook is stable.

Koch Cellulose, a wholly owned indirect subsidiary of Koch Industries Inc., was created to acquire and operate on a stand-alone basis two pulp mills from Georgia Pacific Corp. Koch Cellulose will acquire the Brunswick and Leaf River fluff and SBSK pulp mills from Georgia Pacific for about $610 million and will fund the acquisition with proceeds from the proposed bank facility and approximately $255 million in equity from Koch Industries.

Moody's said the B1 senior implied rating reflects the limited scope and commodity focus of Koch Cellulose's product mix, in addition to the proposed corporate structure which will result in the majority of free cash flow being generated in foreign subsidiaries, the limited restrictions on dividend distributions outside the restricted group of companies after required debt repayment, and the potential challenge in funding unforeseen capital requirements.

The ratings are supported by the equity contribution from Koch Industries and relatively good operating performance under the current pricing environment, in addition to expected lower debt levels over the near term, a good market position for fluff pulp, relatively good cost position, and adequate liquidity.

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