S&P rates new Kraton facility BB-, notes B

Standard & Poor's said it assigned its BB- rating to Kraton Polymers LLC's proposed $60 million senior secured revolving credit facility due 2008 and its $330 million senior secured term loan due 2010, based on preliminary terms and conditions. S&P assigned its B rating to the company's proposed $230 million senior subordinated notes due 2013.

The agency also affirmed its BB- corporate credit rating on Kraton Polymers and assigned a negative outlook, following a review of the proposed refinancing plan related to the company's recent acquisition by Texas Pacific Group and J.P. Morgan Partners.

S&P said that if completed as proposed, the financing package will be used to fund Texas Pacific Group's and J.P. Morgan Partners' acquisition of Kraton Polymers from Ripplewood Holdings for about $770 million.

While the financing adds a material amount of debt to the financial structure, S&P noted a modest improvement in profitability and material free cash generation over the next few years should enable Kraton to reduce leverage to a level appropriate for the current rating.

S&P said the company also is aided by an improved debt maturity profile and solid liquidity, provided by full availability under the revolving credit facility at closing. However, the negative outlook underscores the risk of a lower rating if debt reduction is not achieved and highlights the fact that Kraton's ability to withstand another operating challenge, including the potential for sharply higher raw material costs, has clearly diminished.

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