Reynolds Group Holdings' credit rating has been cut one notch as the packaging company owned by New Zealand billionaire Graeme Hart works to integrate last year's $US4.5 billion acquisition of Graham Packaging and keep its $US18b of debt in check.
Moody's Investors Service cut Reynolds' corporate family rating (CFR) further below investment grade to B3 from B2, citing "an expectation that future improvement may proceed more slowly than originally projected".
Moody's typically uses a CFR rating to cover all of the financial obligations of a speculative-grade corporate issuer.
The ratings outlook was stable on the likelihood the credit metrics will improve. The soft economy and production inefficiencies at the Graham Packaging unit are expected to "drag on operating performance over the intermediate term".
The company's "credit metrics were stressed from a series of debt financed acquisitions and had little room for any negative variance in operating performance," Moody's said.
Hart's ownership was also tagged as a reflection of the rating, with Moody's citing Reynolds' "complex capital and organisational structure" owned by a single person.
The New Zealand billionaire started building his packaging empire in 2006 with his takeover of Carter Holt Harvey, adding Alcoa's packaging business the following year.
He later bought International Papers' beverage packaging unit and Swiss company SiG.
Moody's said the company has strong brands and market positions some segments, and its businesses have a "history of strong execution and innovation prior to their acquisition" with existing management teams largely retained.
Reynolds' rating could get upgraded if it can get its debt to earnings before interest, tax, depreciation and amortisation to less than 6.3 times from its current 6.5 times, reduce its pre-tax earnings to at least 1.4 times interest costs, and improve its fresh cash flow in relation to its debt.
Last month, the packaging company reported a profit of $US8 million in the six months ended June 30, turning around a loss of $US104m a year earlier, as revenue climbed 32 per cent to $US6.9b with the Graham acquisition.