S&P rates Solo Cup loan B-

Standard & Poor's said it assigned a B- rating with a recovery rating of 4 to Solo Cup Co.'s proposed $75 million second-lien term loan maturing 2012 and revised the recovery rating on the company's B+ $150 million first-lien revolving credit facility due 2010 and B+ $650 million first-lien term loan due 2011 to 3 from 4.

The B+ corporate credit rating and B- $325 million senior subordinated notes due 2014 were affirmed, and the outlook remains negative.

Proceeds from the new loan will be used to reduce borrowings under the company's revolving credit facility, increasing availability and bolstering liquidity. Following this transaction, the company will have total debt of about $1.3 billion.

S&P said the revised recovery rating on the existing debt reflects the agency's expectation that because of the rise in interest rates since the loans' inception two years ago and an increase in interest expense due to the addition of the second-lien loan, a payment default would occur earlier than previously thought, at a point in time when EBITDA had not deteriorated to the extent previously expected. This results in a higher enterprise value at the time of default and improved recovery prospects.

The ratings on Solo Cup reflect the highly fragmented and competitive structure of the disposable foodservice products industry, the commodity nature of its products, vulnerability to fluctuating raw-material prices and total adjusted debt to EBITDA of 7x, the agency said.

Partially offsetting factors include a weak business risk profile as the largest disposable foodservice supplier in North America, supported by a broad product mix, national distribution capabilities and well-entrenched customer relationships.

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