Appvion Operations Inc.

The stable outlook reflects leverage remaining at or near 2x EBITDA over the next year. This incorporates our forecast for recent debt reduction and cost-cutting initiatives to offset lower revenues stemming from the divestiture of the point of sale receipt paper business early in 2020 and the effect of COVID-19 on its financial performance. We could lower the rating over the next 12 months if leverage increased closer to 5x EBIDA and/or if EBITDA interest coverage was sustained below 3x. This implies a drop in gross margins in excess of 450 basis points (bps). That could occur if: Cost-savings initiatives the company is implementing are not successful; or Commodity input costs (paper and chemicals) spiked for a sustained period. We

...We expect Appvion to maintain adjusted leverage at about 2x EBITDA. Despite challenging markets conditions in 2020, Appvion Operations Inc.'s leverage for the full year should improve to slightly below 2x (from 2.4x in 2019) following a recent partial repayment made on the term loan in the second quarter. Nevertheless, we expect the benefit of the reduced debt burden to be partially offset by lower adjusted EBITDA generation amid the secular decline in the company's carbonless paper segment, coupled with the negative effect on both the carbonless and the thermal papers segments, brought on by the COVID-19 outbreak. A tepid recovery from the 2020 recession is likely to limit growth in 2021 as job losses and business closures caused by the downturn further reduce the soft demand for carbonless and thermal paper products. We are forecasting revenues to be flat to down slightly in 2021, coming in at just under $490 million from our estimate of about $495 million in 2020. We take this view because...

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