IBC Capital Ltd.

The stable outlook reflects our expectation that Goodpack's business prospects will remain relatively stable over the next 12 months, despite weaker macroeconomic conditions that may weigh on its customers and end markets. The outlook also reflects our expectation that the company's debt-to-EBITDA ratio would remain below 7.5x over the next 12 months. We may lower the rating on Goodpack if business prospects deteriorate significantly or if the company adopts a more aggressive financial risk appetite, causing its EBITDA interest coverage to fall below 2x sustainably or its debt-to-EBITDA ratio to remain above 7.5x. Persistent negative free operating cash flow (FOCF) along with heightened liquidity pressure could also precipitate a downgrade. We view an upgrade of Goodpack to be less likely

...Rising freight costs will weigh on IBC Capital Ltd.'s (Goodpack) margins and leverage over the next 12 months. Surging demand toward goods driven by a pandemic-led shift in consumption habits and supply chain disruption caused by shortage of empty shipping containers will keep freight rates elevated over the next 12 months. Transporting a 40-foot steel container of cargo by sea from Shanghai to Rotterdam now costs a record US$11,975, over 600% above the seasonal average over the past five years, according to Drewry Shipping. We expect this phenomenon to persist through fiscal 2022 until new shipping container orders come in to balance the shipping industry's supply-demand dynamics. We estimate this may weaken Goodpack's EBITDA margin below 48% from the fourth quarter of fiscal 2021 onward, compared with 55% in the same period last year. We now project Goodpack's adjusted debt-to-EBITDA ratio (excluding cash) may deteriorate above 7.0x in fiscal 2021 (year ending June 30), from 6.6x in fiscal...

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