Moody’s cuts Knowlton

Moody’s Investors Service said it downgraded Knowlton Development Corp. Inc. and affiliates’ corporate family rating to B3 from B2 and its probability of default rating to B3-PD from B2-PD. Moody’s also downgraded the first-lien revolver and term loan issued by Knowlton and KDC US Holdings, Inc. as co-borrowers to B3 from B2.

Knowlton plans to upsize its first-lien term loan by $120 million. Proceeds from the incremental $120 million term loan, a $103.9 million revolver draw and $110 million cash on hand will be used to fund a $325 million distribution to shareholders and pay for fees and expenses. As part of this transaction, the company plans to increase its revolving credit facility to $345 million from $175 million.

“The downgrade reflects the meaningful increase in debt to EBITDA financial leverage as a result of the proposed transaction and Moody’s expectation that leverage will remain above 6x over the next 12 months, notwithstanding projected earnings growth. Moody’s views this large cash dividend to represent a very aggressive financial policy,” the agency said in a press release.

The outlook is stable.

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