Moody's rates Waddington loan

Moody's Investors Service said it assigned a B1 rating to the proposed $155 million secured credit facility for Waddington North America Inc., a manufacturer of disposable tableware, servingware, and specialty drinkware.

The outlook is stable.

Moody's said the ratings reflect Waddington's weak balance sheet with total assets consisting primarily of goodwill and intangibles with high pro forma financial leverage. Pro forma free cash flow is pressured by the sizable amount of interest expense, taxes, capital expenditures, and management fees collectively representing more than 70% of EBITDA.

Additionally, susceptibility to adverse resin price conditions with only about 22% of sales under contract for pass through, significant customer concentration with the top two representing about 20% of sales, and vulnerability to fluctuations in demand with only 33% of sales under long term contracts are also factored into the ratings.

Moody's said the primary mitigants to the aforementioned concerns are Waddington's strong EBIT margins in the mid teens, which is higher than comparable rated peers. Product innovation and value added processes afford pricing flexibility, which help to mitigate some of the resin related concerns about margin sustainability. Breadth of product, bundling services, and adequate distribution also are reflected in the ratings.

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