S&P may cut Newark Group

Standard & Poor's said it placed on CreditWatch with negative implications Newark Group Inc.'s B+ corporate credit rating and BB ratings for its $15 million floating-rate term loan bank and $75 million credit-linked letter of credit facility bank loan due 2012.

According to S&P, the watch was prompted by the company's poor earnings and negative cash flows for the third-quarter ended Jan. 31, which resulted from higher input costs, including recycled fiber and energy.

The agency also said the demand for paperboard could decline because of the downturn in the U.S. economy, making the prospect of benefiting from recently announced price increases very challenging. As a result, credit measures are likely to weaken further over the next several quarters, compressing the cushion under the company's financial covenants.

The issuer's debt-to-EBITDA ratio rose to an unexpected 6.7 times, from 5.6 times the previous quarter.

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