Moody's rates Solo Cup loans B1

Moody's Investors Service sad it assigned B1 (LGD3, 32%) ratings to Solo Cup Co.'s $150 million senior secured revolving credit facility due 2010 and $638 million senior secured term loan B due 2011 and confirmed the company's existing ratings, including the B3 corporate family and probability-of-default ratings, Caa1 (LGD4, 69%) $130 million senior secured second-lien term loan due 2012 and Caa2 (LGD5, 87%) $325 million 8½% subordinated notes due 2014.

The outlook was revised to negative from stable. This concludes the review for possible downgrade begun on Sept. 15.

The agency said the outlook revision reflects the company's dependency on asset sales to ease liquidity constraints - the company's substantial working capital needs cannot be managed without significant utilization of the revolver because of the current and projected lack of free cash flow. Moreover, Moody's said Solo Cup has been plagued by poor corporate governance, an inability to execute on previous performance improvement plans, inadequate financial controls, increased competition, rising raw material prices, weak information systems and high financial leverage.

The agency acknowledged that the new leadership structure is expected to have a greater focus on performance and accountability and has the potential to drive improved results. Solo Cup's strong brand name, broad product portfolio, scale and long-standing customer relationships are also contemplated in the ratings and outlook.

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