Moody's rates Sweetheart Cup notes Caa1

Moody's Investors Service said it assigned a Caa1 rating to Sweetheart Cup Co. Inc.'s new $95 million senior secured notes due 2007 and affirmed existing ratings.

Ratings affirmed include the company's $120 million 9.5% senior subordinated notes due 2007 at Caa2, senior implied rating of B3, and senior unsecured issuer rating of Caa1.

Moody's said that absent the redemption of the 2004 notes, the company would not have enough cash on hand or cash from operations to meet the sizable payments from acceleration, and would therefore be in default. The outlook remains unchanged at negative until the liquidity issue is cured.

Upon completion of the proposed transactions and Moody's review of final executed documentation, the ratings outlook may change to reflect enhanced liquidity and to recognize the positive momentum the company has been achieving by lowering costs, improving business fundamentals, and reducing financial leverage, the agency said.

Proceeds from the proposed secured notes and from the private placement of a $20 million junior subordinated note held by International Paper, a strategic partner, will be used to redeem the $93.8 million 12% senior notes due July 2004; to repay term debt; to permanently reduce a portion of the credit facility; and to pay fees and expenses.

The proposed senior note will be partially secured. Moody's does not rate Sweetheart's $205 million secured credit facility nor the $20 million junior subordinated notes.

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