S&P cuts Sonoco view to stable; Tegrant on watch

Standard & Poor's said it revised the outlook on Sonoco Products Co. to stable from positive.

The agency also said it affirmed its BBB+ corporate credit rating and other ratings.

These actions follow news that Sonoco Products signed a definitive agreement to acquire Tegrant Corp. for about $550 million, which Sonoco expects to finance with new debt issuances.

The companies expect the acquisition to close in November 2011 if it obtains all necessary regulatory approval, S&P said.

The increase in Sonoco's debt for the proposed transaction likely will limit prospects for an upgrade during the next one to two years, the agency said.

However, S&P said it does not believe that the increased debt will stretch Sonoco's financial profile beyond a level consistent with the current ratings, particularly given Sonoco's financial policy objectives, which include strengthening the balance sheet.

The agency also said it placed the company's CCC+ corporate credit rating on Tegrant Corp. on CreditWatch with positive implications.

If the transaction closes as proposed, S&P said it would expect to raise and then withdraw all of the ratings on Tegrant.

The acquisition will expand Sonoco's presence in protective packaging, S&P said.

Because Tegrant has primarily domestic operations, the combined protective packaging operations are likely to benefit from Sonoco's international footprint and infrastructure in emerging markets with further penetration into markets in Europe, Asia, and South America, the agency said.

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