Moody's downgrades Glatfelter

Moody's Investors Service said it downgraded Glatfelter Corp.'s corporate family rating to Caa1 from B1, probability of default rating to Caa1-PD from B1-PD, senior unsecured notes rating to Caa2 from B2, senior secured first-lien revolving credit facility and term loan to B1 from Ba2 and speculative grade liquidity rating to SGL-4 from SGL-3.

“The downgrade of the CFR reflects Moody's view that Glatfelter's liquidity is weak, and it will worsen in the next 12-15 months if the company does not refinance its February 2024 term loan maturity. In addition, Moody's believes the tightening of the company's net leverage covenant to 4x (net leverage was 5.7x as of September 2022) beyond December 2023 poses additional liquidity risk. Moody's expect high raw materials costs such as pulp and energy prices will continue to pressure the company's margins amidst a challenging operating environment in Europe and potential slowdown in demand and adverse consumer sentiment,” the agency said in a press release.

Moody’s said it projects Glatfelter’s leverage at around 8x in 2023, tighter credit conditions and a drop in its equity value will combine to make it tougher for the company to secure external funding

Additionally, Moody’s noted that at Sept. 30, Glatfelter had about $45 million of cash (after minimum $50 million liquidity requirement), $32 million of availability under its committed $400 million revolving credit facility, which matures in September 2026, and about $5 million of Moody's expected positive free cash flow through March 2024.

“The company has limited headroom under its most restrictive financial covenants with maximum net leverage ratio of 6.75x (5.7x as of September 2022), which steps down to 4x after December 2023,” Moody’s said.

The outlook remains negative.

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