Avery Dennison“s gets P-1 rating

Moody“s Investors Service affirmed Avery Dennison“s Prime-1 rating for short-term debt, which includes the company“s new callable commercial note (CCN) programme in December 2001. Moody“s also aff…

Moody“s Investors Service affirmed Avery Dennison“s Prime-1 rating for short-term debt, which includes the company“s new callable commercial note (CCN) programme in December 2001. Moody“s also affirmed the A2 ratings on Avery“s Medium Term Note (MTN) programme. Avery intended to use this programme as part of its short-term debt financing strategy. The Jackstadt acquisition is expected to significantly increase the company“s short-term debt. However, Moody“s believes that Avery will be able to term-out a significant portion of the company“s short-term debt and return the average maturity to more reasonable levels. In addition, to the high level of short-term debt subsequent to the acquisition, Avery has US$ 150 million of medium term notes maturing in 2003 and 2004. Failure to reduce short-term debt expeditiously could result in a negative rating action. However, if the company can term-out a significant portion of short-term debt and raise free-cash flow above US$ 150 million, Moody“s would consider changing its outlook on Avery“s long-term debt ratings to stable. The outlook on Avery“s A2 long-term debt ratings were changed to negative after the announcement of the Jackstadt acquisition. The negative outlook reflects the high level of debt, risks associated with integration and generation of synergies from such a large transaction, and concerns that the current economic environment may limit the company“s ability to generate enough free cash flow to reduce debt and return debt protection measurements to acceptable levels in the next 12 months. Moody“s A2 ratings anticipate that Avery can raise retained cash flow to total debt above 40% and keep total coverage above 8.0 times in 2002.