LABL Inc.

The negative outlook reflects the company's elevated leverage and potential for a downgrade if credit measures do not improve over the next 12 months. A resurgence in COVID-19 cases could prompt renewed economic shutdowns or delayed reopenings, and the demand for some label types could retrench. MCC's pro forma adjusted–debt-to-EBITDA ratio as of March 31, 2020, was very high, roughly 9x. This includes $44 million in transaction costs incurred in September 2019. However, adjusting for the roll-off of those costs and contemplating anticipated cost savings and operational synergies, we see leverage improving to 7.6x by Dec. 31, 2020. Although we expect various sales and operational improvements to support credit measures over the next 12 months, operational execution risks could inhibit

...Demand for consumer staples has helped buoy label production despite the COVID-19 pandemic. The pandemic has resulted in a recessionary environment, hitting the leisure and hospitality industries particularly severely. However, packaging labels typically show recession resistance, given their concentration in less-cyclical end-markets. Procter & Gamble Co. is the largest customer for Multi-Color, whose parent holding company is LABL Inc. Demand is strong from P&G and other consumer products customers. Management sees labels as being less affected than other industries. Organic revenue in the March 2020 quarter declined only 55 basis points (bps), with currency responsible for contracting sales 1.8%. We believe revenue will more meaningfully decline in the mid-single-digit percent area in the June 2020 quarter, but do not see contraction being nearly as severe as in other sectors. Cost savings will be important to keeping credit measures on an improving path this year. During the next 12...

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