LABL Inc.'s Proposed $300 Million Senior Secured Notes Rated 'B-' (Recovery Rating: '3')

ENGLEWOOD (S&P Global Ratings) Mar. 28, 2023--S&P Global Ratings today assigned its 'B-' issue-level rating and '3' recovery rating to LABL Inc.'s proposed $300 million senior secured notes due 2028. The '3' recovery rating indicates our expectation for meaningful (50%-70%; rounded estimate: 55%) recovery in the event of a payment default. The company intends to use the proceeds from the notes to fund the purchase of its acquisition target, repay borrowings under its asset-based lending (ABL) facility, pay transaction-related fees and expenses, and for general corporate purposes. In November 2022, the company also upsized its ABL facility to $590 million from $500 million to support its continued growth. Our 'CCC+' issue-level and '5' recovery ratings on LABL's senior unsecured notes

...- Our simulated default scenario contemplates a default occurring in 2025 stemming from very weak economic conditions and changes in customer preferences that reduce the demand for LABL's key products for the consumer packaged goods industry. We believe the reduction in demand would pressure the company's profit margins and cause its cash generation to become insufficient to cover the fixed charges related to its interest, working capital, and capital outlays. Eventually, its liquidity and capital resources become so strained that it is unable to operate without filing for bankruptcy. - Given the company's leading market positions, operational scale, and diversity of label types, we believe it would be reorganized rather than liquidated under our default scenario....

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