Press Release

DBRS Morningstar Confirms Kruger Products L.P.’s Issuer Rating at BB and Senior Unsecured Notes Rating at B (high), Stable Trends

March 25, 2022

DBRS Limited (DBRS Morningstar) confirmed Kruger Products L.P.’s (KPLP or the Company) Issuer Rating at BB and its Senior Unsecured Notes (the Notes) rating at B (high), both with Stable trends. The Recovery Rating on the Notes remains RR6. DBRS Morningstar anticipates that KPLP's operating performance will remain pressured by the challenging operating environment presented by commodity price volatility, input and operating cost inflation, and rising labour costs in the near term. That said, DBRS Morningstar has confirmed the ratings with Stable trends based on the expectation that, as the TAD Sherbrooke and Sherbrooke Expansion Projects ramp up, KPLP's business risk profile will strengthen, thus driving earnings growth and an improvement in credit metrics in the medium term. KPLP’s ratings continue to be supported by its strong brands and leading market position in the Canadian tissue products market, stable demand, and significant barriers to entry. The Company’s ratings also continue to reflect intense competition, volatile input costs, and product/market concentration.

DBRS Morningstar forecasts revenue to grow above $1.7 billion in 2022, from approximately $1.5 billion in 2021, attributable to volume recovery and growth in the Consumer and Away-From-Home (AFH) segments, coupled with the benefit of potential selling-price increases. DBRS Morningstar expects volumes in the Consumer segment to remain above pre-pandemic levels as pandemic-related behavioural shifts, including enhanced cleaning and sanitization measures, remain, while AFH volumes are expected to recover and grow toward pre-pandemic levels in line with population mobility. The ramp up of the TAD Sherbrooke Project will also benefit the topline. In the near-term, DBRS Morningstar believes that EBITDA margins will remain pressured by the challenging operating environment, notwithstanding the impact of potential selling price increases, a shift in mix as the Company grows its market share in the higher-margin Consumer segment as the TAD Sherbrooke Project ramps up, increased in-house manufacturing in the AFH segment, and efficiency-improving benefits from the Operational Excellence Program. Consequently, DBRS Morningstar forecasts EBITDA to be approximately $175 million in 2022, compared with $153 million in 2021. In the medium term, EBITDA will continue to benefit from the ramp up of the TAD Sherbrooke and Sherbrooke Expansion Projects.

KPLP’s financial profile and credit metrics are expected to recover over the medium term, primarily supported by the forecast growth in earnings. DBRS Morningstar forecasts free cash flow (FCF) after dividends and before changes in working capital will remain negative in 2022, as operating cash flow continues to trend in line with earnings, the cash dividend outlay remains relatively flat on 2021 levels at approximately $50 million, and capital expenditure increases to around $200 million on account of the Sherbrooke Expansion Project, the construction of a Facial Tissue line at K.T.G. (USA) Inc., and Artificial Intelligence implementation at KPLP's manufacturing network. DBRS Morningstar anticipates that the forecast FCF shortfall, IFRS 16 principal lease payments, and mandatory debt repayments will be funded by available cash on hand, higher borrowings, and proceeds from Kruger Inc.'s dividend reinvestment plan participation, which DBRS Morningstar anticipates will remain at 50% in 2022. As EBITDA is forecast to grow modestly in 2022, and by a greater proportion than the increase in debt, DBRS Morningstar forecasts a modest improvement in debt-to-EBITDA to below 7.0 times (x) from just over 7.0x in 2021, with a potential for a further improvement in the medium term from growth in EBITDA and mandatory debt repayments. Should credit metrics deteriorate for a sustained period as a result of weaker-than-expected operating performance and/or more aggressive financial management, the ratings will be pressured. Although unlikely, DBRS Morningstar could take a positive rating action should the Company's business risk profile meaningfully strengthen and credit metrics improve on a normalized and sustainable basis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at

All figures are in Canadian dollars unless otherwise noted.

The principal methodologies are Rating Companies in the Consumer Products Industry (July 26, 2021;; DBRS Morningstar Criteria: Guarantees and Other Forms of Support (May 31, 2021;; and DBRS Morningstar Criteria: Recovery Ratings for Non-Investment-Grade Corporate Issuers (August 19, 2021; which can be found on under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 03, 2021;

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at [email protected].

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

For more information on this credit or on this industry, visit or contact us at [email protected].

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