Sept 26 - While the creditworthiness of rated European packaging companies should remain stable for the remainder of this year and into 2013, the liquidity positions of several firms could give rise to negative rating actions over the near term, says a report published by Standard & Poor's Ratings Services. According to the report, titled "Liquidity Concerns And Economic Woes Threaten The Stability Of The European Packaging Sector," we expect packaging demand to grow by about 3% per annum worldwide over the medium term, with emerging markets--particularly Asia and South America--forcing the pace, albeit at a lower level than we previously projected.
"Our base-case forecast for the European packaging sector assumes relatively stable EBITDA margins, driven by input cost pass-through clauses in a large portion of contracts, or timely price negotiations," said Standard & Poor's credit analyst Rachel Lion. "We expect full-year 2012 credit ratios to be similar to those in 2011, and in line with our ratings for most companies. That said, any unexpected changes in companies' financial policies, such as aggressive share buybacks or leveraged acquisitions, could be detrimental from a credit perspective--as could further deterioration in the economic climate."
Among the findings of the report are that:
-- Sixty percent of companies in our rated European packaging portfolio, most of which are private-equity owned, have financial risk profiles that we assess as "highly leveraged." This leads to a heavy weighting toward the 'B' rating category, where one-half of our packaging portfolio's long-term corporate credit ratings currently sit. In our view, companies that we rate at this level are more vulnerable to even modest changes in business conditions.
-- Raw material cost volatility should remain manageable for most packaging companies in the near term. As a consequence, we believe companies' operating results should improve for the next few quarters, following results in the second quarter of 2012 that were slightly weaker than we anticipated.
-- Mergers and acquisitions activity--such as the recent announcement of the intended takeover of Nordenia International AG (B+/Watch Pos/--) by Mondi Group (BBB-/Stable/--)--is likely to continue, assuming favorable capital market conditions.