S&P cuts ACCO outlook to negative

Standard & Poor's said it revised its outlook on ACCO Brands Corp. to negative from stable and affirmed all of the company's ratings, including the BB- corporate credit rating, BB- senior secured bank loan with a recovery rating of 2 and B subordinated debt rating.

The outlook revision follows ACCO's weaker-than-expected operating performance for its fiscal year ended December and its revised guidance for fiscal 2006. S&P said it previously expected improvements in operating performance through cost savings from merger synergies and the company's continued focus on cost containment.

However, despite a 3% increase in pro forma net sales, pro forma EBITDA declined by about 11% versus the prior year due to unfavorable pricing in certain office products categories, higher raw material costs and double-digit increases in distribution and freight costs, the agency said. As such, credit protection measures have weakened: pro forma lease-adjusted EBITDA to interest was about 2.9x at year end 2005 and lease-adjusted total debt to EBITDA was more than 5x.

S&P said the ratings reflect ACCO's leading market position, portfolio of well-known brands and wide geographic distribution. These factors are somewhat mitigated by the highly competitive operating environment in which the company operates, customer concentration and the company's highly leveraged financial profile.

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