Appvion Operations Inc.

The stable outlook reflects leverage remaining in the 3x-3.5x area over the next year due to slightly lower debt levels and steady EBITDA levels in the $40 million area, as cost-cutting initiatives offset lower sales. We could lower the rating over the next 12 months if gross margins declined in excess of 100 basis points (bps), resulting in debt to EBITDA exceeding 4x and approaching 5x, or if EBITDA interest coverage were sustained below 3x. This margin degradation could occur if the cost initiatives the company is implementing failed to offset unexpectedly higher input costs or if commodity input costs spiked for a sustained period. We could also downgrade the company if its owners altered the current financial policy, resulting

...The carbonless paper segment is in secular decline and represents a smaller allocation of total sales. The company believes the North American carbonless paper market declined by approximately 3% to 5% annually since 2015. We assume the decline will continue at historical rates over the next several years. In addition to the decline in the North American market, the company believes the global market is also in decline, with demand declining at approximately 2% to 5% per year. With the carbonless paper market in secular decline, the segment as a percentage of total sales declined to 35% of total sales in 2018 from 41% in 2016. We expect this trend to continue, reaching about 30% in 2019. We believe there is some customer concentration that could negatively affect operations. Sales to the company's largest customer accounted for about 12% of net sales in 2018. The five largest customers in the carbonless paper segment accounted for about 38% of 2018 carbonless paper net sales. The five largest...

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