Spring Grove-based paper maker Pixelle Specialty Solutions recently unveiled steps to bolster its finances. But they do not appear to be enough to satisfy a ratings agency concerned about the company’s liquidity.
S&P Global initially downgraded the company following the refinancing.
The agency then restored the original rating but added a negative outlook, warning that “continued operational weakness could pressure Pixelle’s cash flows and erode its liquidity within the next 12 months.”
What’s the refinancing: Pixelle did not release many details at the time. But S&P disclosed some of them in its two recent ratings announcements.
Pixelle received a nearly $90 million boost to its liquidity, including a $35 million equity contribution and a $10 million unsecured term note from H.I.G. Capital, a private equity firm that bought the paper maker in 2022, according to S&P.
The company also restructured existing debt, providing what S&P described as a “temporary lifeline.”
However, S&P said it considered Pixelle’s capital structure “unsustainable” in the near term in light of the company’s “bleak operational performance,” high fixed costs and upcoming debt repayments in 2025.
“The company is dependent on a favorable turn in operating and financing conditions to fully alleviate its liquidity challenges,” S&P analysts wrote.
The company does have room to turn things around, the agency added.
Pixelle declined to comment on the ratings actions. But in a June 12 press release announcing its refinancing, Pixelle CEO Ross Bushnell struck a confident tone.
“Our operational performance in Q2 of 2024 has shown significant improvement and we are committed to identifying and implementing additional improvements to our business to be the most reliable manufacturer of specialty papers in North America,” Bushnell said.
What’s the current rating: CCC.
The speculative-grade rating indicates a company is vulnerable and dependent on favorable business, financial and economic conditions to meet its financial commitments, according to S&P.
Ratings gauge the relative riskiness of investing in a company’s debt.
The background: Pixelle was formerly the specialty papers division of Glatfelter, which was founded in Spring Grove in 1864.
In 2018, Glatfelter sold the division, its largest at the time, to New York-based investment firm Lindsay Goldberg, which gave the unit the Pixelle name. The price was about $360 million.
Lindsay Goldberg sold Pixelle to H.I.G. two years ago for an undisclosed amount.
Glatfelter moved to North Carolina in 2020 but Pixelle remained in Spring Grove.
Pixelle makes paper used in printing, envelopes, food packaging, greeting cards and book publishing, among other uses.
The company employs about 2,100 people at four plants: one in Spring Grove, one in Stevens Point, Wisconsin, and two in Ohio.