Fri 07/23/2021 12:11 PM
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Paccor endured another challenging month in May as runaway resin prices continued to hurt margins, and free cash flow excluding the impact of a €15 million sponsor equity injection remained negative. The German rigid plastic producer expects the impact from raw material price inflation to start moderating from July as cost pass-throughs begin kicking in, but the uncertain outlook in the key travel hospitality segments in the face of rising Covid-19 infection rates across the U.K. and Europe will remain a drag on sales, sources told Reorg.

The group generated €46.4 million of sales in May, which was ahead of the €45.5 million budgeted and up from €39.9 million the same month last year. The rise in sales was mainly driven by increased pricing as a result of the spike in resin costs, which has been squeezing its margins, the sources said.

The surge in raw material costs accelerated in May, jumping by €6.4 million versus the same period last year. As a result, EBITDA came in at €4.8 million in May, way off the €8.4 million Paccor budgeted and down on the €5.1 million it generated in May last year.

April and May represented the peak of the raw material impact, management told lenders. However, margins won’t begin recovering until July, since the pass-through changes quarterly. About 80% of the group’s contracts contain raw material pass-through clauses with an average lag of three months, as reported.

On a year-to-date basis, Paccor generated €219 million of sales to May, which is ahead of €211.8 million budgeted but behind €224.1 million it generated last year. YTD EBITDA reached €27.8 million, well short of €34.1 million budgeted and down from €30.7 million for the same period the prior year.

Paccor remained free cashflow negative on an underlying basis in May. The group generated €11.7 million of cash, but that includes the €15 million equity contribution made by sponsor Lindsay Goldberg in connection with the acquisition of Miko Pac. Without the sponsor cash injection, the company would have burnt through €3.3 million in May, and through €16.1 million on a year-to-date basis.

Liquidity improved to €30.9 million, comprising €20.9 million of cash and the remaining €10 million available under its €50 million RCF. The revolver is subject to a 7.47x net leverage test when more than 35% drawn.

Paccor’s net leverage improved marginally as a result of the equity injection, reducing 0.1x to 5.28x at the end of May, based on pro forma adjusted EBITDA.

The group also raised €120 million via an add-on to its term loan B in May, as reported. While the incremental debt will predominantly be used to fund its acquisition of Miko Pac, Paccor used €17.5 million of the proceeds to pay down its revolver at the end of June. The group assumed €18.6 million of Miko Pac’s debt as part of the transaction. It aims to consolidate the asset by the end of the third quarter.

Paccor acquired Miko Pac for €110 million, a 5.98x 2020 EBITDA multiple. The asset generated €106 million of sales and €18.4 million EBITDA in 2020, and the combined group was 5.5x net levered based on pro forma adjusted 2020 EBITDA of €103.1 million. The transaction closed at the start of June, as reported.

Paccor capital structure pro forma for the add-on is below:
 

Paccor expects to benefit from the gradual re-opening of the economy as it is heavily exposed to sectors like hotels, restaurants and cafes as well as office working, which should provide a near-term boost as it recovers lost ground. However, its growth prospects are limited, meaning that deleveraging will need to come mainly from its cost-optimization plans, under which it expects to realize some €24 million of cost savings by 2023 that should flow through to the bottom line, sources said.

The upfront costs for the operational restructuring will remain a drag on cash in the near term, but so far Paccor has spent less than expected, one source added.

In addition, Paccor will face ongoing regulatory and consumer pressure to produce more sustainable packaging. Just 65% of the company’s products are recyclable. Paccor is targeting 100% recyclability by the end of 2023, as reported.

Paccor’s term loan B is quoted at 97.8, according to Solve Advisors.

According to Reorg’s CLO Database, the largest holders include:
  • Napier Park Global Capital (€29.6 million of the E+450 bps facility);
  • HPS Investment Partners (€26 million of the E+450 bps facility);
  • Accunia Credit Management (€23 million of the E+450 bps facility);
  • Onex Credit Partners (€20 million of the E+450 bps facility);
  • Guggenheim (€16.5 million of the E+450 bps facility);
  • Axa Investment Managers (€5.3 million of the E+450 bps facility); and
Paccor’s capital structure as of May is below:
 
Paccor Packaging GmbH
 
05/31/2021
 
EBITDA Multiple
(EUR in Millions)
Amount
Maturity
Rate
Book
 
Factoring Facility
9.0
 
 
 
Total Recourse Factoring
9.0
 
0.1x
€50M 1st Lien RCF due 2024
40.0
Jul-31-2024
 
 
€317M 1st Lien Term Loan B due 2025
317.0
Jul-31-2025
EURIBOR + 4.500%
 
Total 1st Lien Secured Debt
357.0
 
4.7x
€70M 2nd Lien Term Loan Facility
70.0
Jul-31-2026
 
 
Total 2nd Lien Secured Debt
70.0
 
5.6x
Overdraft & Other
11.2
 
 
 
Supplier Financing
3.1
 
 
 
Total Other Debt
14.3
 
5.8x
IFRS 16 Leases
45.7
 
 
 
Total IFRS 16 Leases
45.7
 
6.4x
Total Debt
496.0
 
6.4x
Less: Cash and Equivalents
(20.9)
 
Net Debt
475.1
 
6.1x
Operating Metrics
LTM Reported EBITDA
77.7
 
 
Liquidity
RCF Commitments
50.0
 
Less: Drawn
(40.0)
 
Plus: Cash and Equivalents
20.9
 
Total Liquidity
30.9
 
Credit Metrics
Gross Leverage
6.4x
 
Net Leverage
6.1x
 

Notes:
Senior net debt excluding borrowings that do not constitute senior debt (factoring, supplier financing, leases, other) amounted to €408.8 million. Senior leverage at 5.28x.

-- Robert Schach
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