S&P revises Knowlton Development view to negative

S&P said it revised Knowlton Development Holdco Inc.’s outlook to negative from stable but affirmed the B- ratings on it and its $100 million add-on term loan. The loan’s 3 recovery rating was also affirmed. The 3 recovery rating indicates expectations for meaningful (50%-70%; rounded estimate: 50%) recovery in default.

Concurrently, Knowlton plans to upsize its revolver to $345 million from $170 million.

The proceeds, along with borrowings on the revolver and cash from the balance sheet, will be used to fund a $325 million distribution to equity holders.

“We expect fiscal 2021 credit measures will weaken significantly following the shareholder distribution transaction. We forecast the proposed transaction will increase KDC’s total debt by more than $200 million compared with S&P Global Ratings’ adjusted debt as of Oct. 31, 2020,” the agency said in a press release.

The outlook reflects the view that KDC’s higher leverage, combined with execution missteps or underperformance, could hurt its ability to deleverage over the next 12 months.

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