S&P Lowers Outlook on Berry Plastics Group (BERY) to Stable Amid AEP Industries Deal

August 26, 2016 8:22 AM EDT

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S&P Global Ratings said that it has revised its outlook on Berry Plastics Group Inc. (NYSE: BERY) to stable from positive and affirmed all of its ratings on the company.

"The outlook revision reflects our belief that Berry's credit metrics will remain elevated after it completes its acquisition of AEP," said S&P Global credit analyst Daniel Lee. "We had previously assigned a positive outlook to Berry because the company was pursuing an aggressive debt reduction strategy." Following the successful completion of its acquisition, we expect that the company's adjusted debt-to-EBITDA metric will remain at the higher end of the 4.5x-5.0x range over the next 12 months, which would be commensurate with the current rating.

The stable outlook on Berry reflects our expectation that the company will successfully close its acquisition of AEP by the end of December 2016, based on the terms announced. We anticipate that the company will continue to experience solid demand for its packaging products and realize acquisition synergies of approximately $35 million over the 12 months following the close of the transaction. In addition, we expect Berry's adjusted debt-to-EBITDA metric to be in the 4.5x-5.0x range over the 12 months following the acquisition, which would be commensurate with the current rating.

We could lower our ratings on Berry if the company experiences a sudden decline in the demand for its packaging products. We could also lower our ratings if the terms of the transaction change such that the amount of debt the company plans to use for the acquisition increases, or if the company is unable to successfully realize the expected acquisition synergies. We would expect Berry's adjusted debt-to-EBITDA metric to exceed 5x without any prospects for improvement under such a scenario.

We could raise our ratings on Berry if the company experiences better-than-expected demand for its packaging products. We could also raise our ratings if the terms of the transaction change such that the amount of debt the company plans to use to finance the acquisition decreases, or if it is able to realize a greater-than-expected level of acquisition synergies. We would expect Berry's adjusted debt-to-EBITDA metric to fall below 4.5x on a sustained basis under such a scenario.



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