Moody's rates AEP Industries notes B2

Moody's Investors Service said it assigned a B2 rating to AEP Industries Inc.'s new $175 million senior unsecured notes due 2013 and concurrently affirmed AEP's existing ratings.

Ratings affirmed include the $200 million 9.875% senior subordinated notes due 2007 at B3, the senior implied rating of B1, and the senior unsecured issuer rating (non-guaranteed exposure) of B2. The outlook is stable.

Proceeds from the issuance, along with drawings from the company's existing $100 million borrowing base governed secured revolver (not rated by Moody's), are intended to repay AEP's $200 million 9.875% senior subordinated notes due 2007 and to pay related fees and expenses.

Moody's said the proposed transaction is relatively credit neutral with a minimal increase in financial leverage offset by reduced interest expense (EBIT covers pro-forma interest expense close to 2 times) and extended maturities. While recognizing AEP's solid performance during the last three years despite having a prolonged adverse business condition, moderate levels of free cash flow relative to debt well below 10% during the historical period and projected during the intermediate term - as well as high financial leverage with pro-forma debt to EBIT approaching 8 times - continue to constrain the ratings.

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