PHM Netherlands Midco B.V.

Our stable outlook reflects our view that PHM will be free cash flow positive in 2021 while maintaining adequate liquidity with a modest cash balance, despite elevated debt leverage of slightly more than 8x. We also expect the company to maintain interest coverage of 2x-2.5x over the next 12 months. Although unlikely, we could downgrade the company within the next year if COVID-19 recessionary pressures or other adverse market or macroeconomic events reduced EBITDA margins at least 600 basis points (bps) from our forecast such that interest coverage fell less than 1x or the company could no longer generate positive free cash flows. We could raise the rating in the next year if we see the adverse economic impact stemming

...Leverage has been elevated over the past few quarters. Debt leverage has been higher than we expected because of COVID-19 recessionary pressures. Leverage rose over 8x in 2019 when PHM Netherlands Midco B.V. was acquired in a debt-financed transaction by a financial sponsor and increased above 10x by mid-2020 after PHM merged with Germany-based specialty film-based release liner and engineered film manufacturer, Infiana Group Gmbh, in another debt-financed transaction. We project debt leverage will decline to the 7.5x area within the next 18 months. PHM Netherlands has a narrow product focus. Last year's merger with Infiana Group Gmbh resulted in the combined companies having an even split between paper and film-based substrates, with less focus on commodity and more on value-added applications. However, it is still a pure-play release liner manufacturer, and we believe the overall product focus remains narrow and limited. PHM Netherlands is a market leader in release liners, with an estimated...

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