Neenah Inc. #BB# Corporate And Issue-Level Ratings Outlook Positive

Stocks and Financial Services Press Releases Tuesday May 22, 2018 09:45
SAN FRANCISCO--22 May--S&P Global Ratings
SAN FRANCISCO (S&P Global Ratings) May 21, 2018--S&P Global Ratings today affirmed its 'BB' corporate credit rating on Neenah Inc. The outlook is positive.

We also affirmed our 'BB' issue-level rating on the company's senior unsecured notes. Our recovery rating on the notes remains a '3', indicating expectations for a meaningful recovery (50%-70%; rounded estimate 65%) to noteholders in the event of a default.

Our affirmation of the rating and positive outlook reflect our view that Neenah will continue to shift its product mix to more technical, higher value-added specialty applications and away from traditional paper products. The company's credit profile is improving as margins for the technical products business strengthen towards 16%-17% and organic growth continues for this segment. There is at least a 30% probability we could take a more favorable view of the business.

The positive outlook reflects our view of the company's improving business fundamentals as it garners more revenue and EBITDA from its technical products and less from the declining graphic imaging segment. As this segment of the business improves, we see at least a 30% likelihood for an upgrade to 'BB+' over the next 12 months.

We may consider revising the outlook to stable over the next 12 months if we expect leverage to exceed 3.0x for a sustained period. Although not consistent with our baseline forecast, this may occur if the company pursues a more aggressive and debt-financed acquisition strategy. We may also revise the outlook if we believe profitability for the technical products business will be subdued at EBITDA margins of 14% or less beyond 2018.

Growth and stronger profitability from the technical products business could lead to a one-notch upgrade over the next 12 months. More specifically, we would look for this segment to improve EBITDA margins towards 17% and achieve revenue growth consistent with our forecast of 13% or better, keeping debt leverage between 2.0x and 2.5x.


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