Announcement: Moody's: Schweitzer-Mauduit's planned merger with Neenah,Inc. is credit negative but ratings unaffectedGlobal Credit Research - 28 Mar 2022New York, March 28, 2022 -- Moody's Investors Service (Moody's) saidSchweitzer-Mauduit International, Inc.'s ("SWM") planned merger withNeenah, Inc. ("Neenah"), a manufacturer of fiber-based technicalproducts and fine paper and packaging products (rated Ba2/negative), iscredit negative. While the transaction is modestly deleveraging, SWM'sfinancial leverage remains high for its business risk. Moody's estimatespro forma 2021 adjusted debt-to-EBITDA to approximate 5.5x beforesynergies, noting the merger also poses integration risks amidcontinuing business challenges that will likely protract SWM'sde-leveraging path. However, the transaction announcement does not havean immediate effect on SWM's ratings, including the Ba3 corporate familyrating, or negative outlook.At closing, the transaction will involve an equity swap as well aspaying down existing SWM revolver borrowings and repaying Neenah's debt.In connection with these plans, SWM has obtained a $650 million initial364-day (bridge) facility. The company also expects to refinance its$500 million revolving credit facility, of which $393 million was drawnas of December 31, 2021. Moody's expects the debt capital structure tobe finalized before the end of 2022. Moody's believes the merger withNeenah will improve SWM's business profile, adding scale anddiversification, with a larger global footprint and complementarytechnologies and products tied to end markets with positive longer-termgrowth prospects, such as filtration and healthcare. SWM expects toachieve at least $65 million in cost synergies within 24-36 months oftransaction close.However, Moody's views the sizable transaction as credit negativebecause it is occurring amid challenging business conditions with bothSWM and Neenah facing inflationary pressures (labor, raw materials,freight) and supply chain headwinds. These headwinds will continue forsome time and likely be exacerbated by the Russia-Ukraine crisis, whichposes downside risks to macroeconomic growth and supply chains. SWM isalso undertaking the Neenah merger from a leveraged position followingits transformative (debt-funded) acquisition of Scapa plc in April 2021.Moody's notes that supply chain issues and the pace of rising inputcosts relative to the timing of price increases have delayed therealization of previously expected earnings growth and Scapa acquisitionsynergies. Additionally, SWM and Neenah must navigate secular businesspressures with the gradual decline of SWM's tobacco-related business(30% of SWM sales) and Neenah's fine paper and printing business (18% ofNeenah sales). These higher margin and solid cash flow generativebusinesses have supported SWM's and Neenah's diversification, and thegrowth of their industrial (specialty materials) segments.The transaction is expected to close in the second half of 2022, subjectto shareholder and regulatory approvals, and customary closingconditions. The timing of earnings accretion to improve credit metricsnear term, along with the final capital structure and Moody's view ofthe company's financial policy (including the pace and size ofadditional debt-funded acquisitions) will be important drivers of theratings going forward.Schweitzer-Mauduit International, Inc. is a producer of specialtymaterials focused on resin-based nets, films and other non-wovensthrough its Advanced Materials & Structures segment and fiber-basedcigarette papers and reconstituted tobacco products through itsEngineered Papers segment. Scapa Group Plc, acquired in April 2021, is amanufacturer of adhesives, coatings and topicals through its healthcarebusiness, and specialty tapes for various end markets in its industrialbusiness. Revenue reported for the fiscal year ended December 31, 2021was $1.44 billion.This publication does not announce a credit rating action. For anycredit ratings referenced in this publication, please see the ratingstab on the issuer/entity page on www.moodys.com for the most updatedcredit rating action information and rating history.Yvonne NjoguVice President - Senior AnalystCorporate Finance GroupMoody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007U.S.A.JOURNALISTS: 1 212 553 0376Client Service: 1 212 553 1653Dean DiazAssociate Managing DirectorCorporate Finance GroupJOURNALISTS: 1 212 553 0376Client Service: 1 212 553 1653Releasing Office:Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007U.S.A.JOURNALISTS: 1 212 553 0376Client Service: 1 212 553 1653© 2022 Moody's Corporation, Moody's Investors Service, Inc.,Moody's Analytics, Inc. and/or their licensors and affiliates(collectively, "MOODY'S"). 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