(The following statement was released by the rating agency)
Fitch Ratings-New York-15 January 2021:
Fitch Ratings has downgraded the Issuer Default Ratings (IDRs) for Knowlton
Development Corporation Inc. (KDC) and Knowlton Development Holdco, Inc. to
'B-' from 'B'. The Rating Outlook is Stable. Fitch has also downgraded the
instrument ratings on the company's revolver and term loans, which it plans to
increase, to 'B-' from 'B+'. The Recovery Rating (RR) on the debt has been
revised to 'RR4' from 'RR3'.

The downgrade of KDC's ratings reflects Fitch's expectation that leverage will
increase to close to 7x, driven by the company's plan to add debt to fund a
$325 million shareholder distribution to its equity holders including Cornell
Capital. The downgrade also reflects Fitch's expectations for negative FCF in
fiscal 2021 (fiscal year ending April 2021) and fiscal 2022, as the company is
dramatically increasing capex for growth initiatives.

Prior to the shareholder distribution, Fitch had expected fiscal 2021 leverage
to be close to 6x, due to EBITDA growth from new acquisitions and debt
reduction. While Fitch currently forecasts leverage to improve modestly to
mid-6x in fiscal 2022 and fiscal 2023, leverage could remain above 7x given
ongoing investments to drive revenue growth. In addition, weakness in KDC's
color cosmetics business stemming from the COVID-19 pandemic's impact on
consumer preferences could extend into 2022, and elevated capex could result
in increased borrowings under its revolver.

The company plans to increase the EUR460 million tranche term loan due
December 2025 by EUR100 million or $120 million to help fund the $325 million
shareholder distribution. KDC also plans to increase its revolver due December
2023 to $345 million from $170 million. The increased revolver will support
the company's liquidity, including a jump in capital spending from the second
half of fiscal 2021 through fiscal 2023.

The ratings continue to reflect KDC's position as a global leader in custom
formulation, packaging and manufacturing solutions for beauty, personal care
and home care brands, supported by a diverse product portfolio and customer
base, with whom the company typically maintains long-term relationships. Fitch
expects KDC's broadening platform and investment in R&D to enable the
company to sustain modest organic revenue growth over the long term.
Key Rating Drivers
Debt-Funded Shareholder Distribution Raises Leverage: KDC ended fiscal 1H21
with debt of about $1.49 billion, which was mostly first-lien term loans as
the company's revolver was undrawn. KDC has proposed a $325 million
shareholder distribution that it plans to fund by increasing its term loan by
$120 million and drawing $104 million on its revolver, with the remainder
funded by cash on hand. The additional debt will push Fitch's forecast for
leverage up to around 7x by the end of fiscal 2021, from about 6x previously.

Heavy Capex Drives Negative FCF: The shareholder distribution comes at a time
when KDC plans to sharply increase capex relative to prior expectations to
support the company's organic growth initiatives and new contract wins. Fitch
expects the higher capex will result in negative FCF in fiscal 2021 and fiscal
2022 given our EBITDA projections. Fitch expects a return to positive FCF in
fiscal 2023 as growth capex tapers off, but this could be delayed if there are
new mandates requiring additional investment. Assuming the company executes
the increase of its revolver to $345 million, Fitch views pro forma liquidity
as comfortable with over $240 million available and nearly $130 million of
cash.

Defensible Competitive Advantage: KDC is one of the largest players in the
market for outsourced custom formulation, packaging and manufacturing
solutions for beauty, personal care and home care brands following its recent
acquisitions with pre-COVID-19 revenue over $2 billion. KDC's business model
of partnering with its customers to create new products and rapidly bringing
them to market creates deeply entrenched relationships. Significant investment
in R&D and technology and a breadth of product expertise that enables KDC
to provide turnkey solutions solidify its competitive advantage.

KDC has expanded from operating a single factory in Canada in 2002 to
operating 25 manufacturing facilities worldwide that serve over 800 customers.
Within the beauty and personal care segment, the company's customers range
from indie brands to giants in consumer packaged goods, providing a natural
hedge to rapidly changing industry dynamics. KDC also covers a wide range of
products, such as personal care, skincare, cosmetics, deodorants, soaps,
sanitizers, fragrances and shampoo. The company's recent acquisitions provide
critical mass to its home care segment while also diversifying its portfolio.
Customer concentration is moderate; no single customer accounts for more than
15% of sales pro forma the recent acquisitions.

Stable End Markets: KDC benefits from operating in end markets where demand is
relatively stable, even during recessionary conditions. Fitch estimates that
beauty sales remained flat to positive during the global financial crisis as
the sector benefits from low price points and due to the fact that health and
beauty products are often everyday-use, consumable items. The company's
flexible manufacturing base allows it to redirect capacity from segments of
weak demand to areas of strength.

The impact of the coronavirus on the company's sales has been mixed, with
demand for personal care and home care products increasing and demand for
"non-essential" products, particularly color cosmetics, down sharply. The net
result in the six months ended October 2020 has been 1% organic value-added
revenue growth for KDC YoY. These trends may continue in the near term despite
the rollout of vaccines as lingering caution among consumers results in higher
demand for soaps and sanitizers, while continued mask usage reduces demand for
color cosmetics. Over the medium term, Fitch expects demand patterns for the
company's products to return to normal, contributing to a low-single-digit
long-term organic growth rate.

Acquisitive Strategy Supports Growth: KDC's acquisition strategy supplements
organic growth by adding capabilities in adjacent new markets to enable the
company to capitalize on cross-selling opportunities in its customer base,
which helps KDC to grow its wallet share. KDC has acquired over a dozen
companies over the last five years with seven acquisitions in the last 18
months. The company's M&A activity focuses on companies with additive
technologies, new geographies, strong customer bases and attractive growth,
margin and FCF profiles. The recent acquisitions were sizable, more than
doubling the EBITDA of the company on a pro forma basis. The large equity
contributions from the sponsor and the roll of equity from one of the target's
founders helped mitigate the impact on gross debt/EBITDA.
Derivation Summary
KDC's 'B-' rating reflects its position as a global leader in custom
formulation, packaging and manufacturing solutions for beauty, personal care
and home care brands, supported by a diverse product portfolio and a customer
base ranging from blue-chip names to "indie" brands, with whom the company
typically maintains long-term relationships. Fitch expects KDC's broadening
platform and investment in R&D will enable the company to sustain modest
organic revenue growth over the long term. KDC's ratings near-term are
constrained by its elevated leverage and expected negative FCF as the company
plans to increase debt to fund a $325 million shareholder distribution during
a period when it is dramatically increasing its capex spend to fund growth
initiatives.

KDC is rated higher than Anastasia Intermediate Holdings, LLC (CCC).
Anastasia's rating reflects Fitch's view that its capital structure is
unsustainable following deterioration in Anastasia's operating trends. After
many years of strong growth, revenue turned flat in 2018, and Fitch expects
this could represent the company's peak volume. EBITDA, which peaked at around
$175 million, could moderate toward $40 million over the next few years,
yielding leverage (gross debt to EBITDA) in the mid-teens. These projections
raise significant questions regarding the long-term health of the brand and
the ability of management to successfully execute new product launches and
expense management. The rating also considers the company's narrow product and
brand profile, and risk that continued beauty industry market share shifts
could further weaken Anastasia's projected growth through new entrants and
brand extensions from existing large players.

KDC is rated similarly to Mattel, Inc. (B/Positive). Mattel's IDR reflects the
company's operating trajectory, with EBITDA expected to improve to around $625
million in 2020 from the 2017 and 2018 trough of about $270 million, largely
on cost reductions. EBITDA improvement caused FCF to turn positive in 2019
after four years of outflows; gross debt/EBITDA improved from the 11x peak in
2017 and 2018 to 6.4x in 2019, and Fitch expects further improvement to mid-4x
in 2020. Revenue, which declined from a $6.5 billion peak in 2013 to $4.5
billion in 2018, has stabilized around $4.5 billion. The Positive Outlook
reflects increasing confidence that the company has successfully addressed
many of its operating challenges, yielding improvements to Mattel's cash flow
and leverage profile as well as its financial flexibility.

KDC is rated below Newell Brands Inc. (BB/Negative). Newell's rating and
Negative Outlook reflect elevated leverage (total debt/EBITDA) of 4.4x
following the completion of its asset divestiture program and ongoing topline
challenges in a number of its categories. The ratings also reflect the
significant business interruption from the coronavirus pandemic and the
potential of a downturn in discretionary spending.
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer

- Fiscal 2021 revenue growth exceeds 85% largely due to acquisitions as
continued weakness in cosmetics is offset by strength in personal care and
home care. Organic revenue growth returns to the low-single-digits in fiscal
2022 and 2023, benefiting from new business wins, continued strong demand for
personal care and home care products and recovering demand for cosmetics.

- EBITDA margins improve in 2021 due to acquisitions, synergy capture, and
fixed cost leveraging from new business wins.

- Elevated capex in fiscal 2021 and fiscal 2022 results in negative FCF while
FCF turns positive in fiscal 2023 as growth capex needs moderate.

- Leverage improves from 14.7x at the end of fiscal 2020 (fiscal 2020 includes
the debt from acquisitions but only a small portion of the combined EBITDA) to
around 7x in fiscal 2021. While Fitch currently forecasts leverage to improve
modestly to the mid 6x in fiscal 2022 and fiscal 2023, leverage could be
sustained above 7x given ongoing investments to drive top line, weakness in
its color cosmetics business given the impact of the pandemic on consumer
preferences that could extend into 2022, and elevated capex that could result
in increased borrowings under its revolver.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating
action/upgrade:

- Positive rating action would be considered if KDC's operating trajectory
exceeds Fitch's expectations, with the high capex leading to
better-than-expected EBITDA growth, a return to sustained and positive FCF and
debt/EBITDA sustained under 7x.

Factors that could, individually or collectively, lead to negative rating
action/downgrade:

- Negative rating action would be considered if top-line weakness, pressure on
margins and increased capex lead to continued negative FCF beyond fiscal 2022,
or an acceleration of the company's acquisition strategy or any debt-financed
transaction such as special shareholder distributions results in sustained
debt/EBITDA over 8x, leading to concerns around the viability of the company's
capital structure.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a
best-case rating upgrade scenario (defined as the 99th percentile of rating
transitions, measured in a positive direction) of three notches over a
three-year rating horizon; and a worst-case rating downgrade scenario (defined
as the 99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges from 'AAA'
to 'D'. Best- and worst-case scenario credit ratings are based on historical
performance. For more information about the methodology used to determine
sector-specific best- and worst-case scenario credit ratings, visit

Liquidity and Debt Structure
Comfortable Liquidity: Liquidity proforma for the proposed transactions totals
around $370 million consisting of around $240 million available on the
company's proposed $345 million revolver and approximately $129 million of
cash. The debt structure is expected to include $104 million drawn on the
revolver and approximately $1.6 billion in term loans. The revolver is KDC's
first maturity, which comes due in December 2023, and, apart from modest
quarterly amortization, the company has no maturities until December 2025 when
the first lien term loan matures. The company is subject to a single springing
financial covenant (based on revolver utilization) requiring first lien
leverage to be no greater than 7.75x.

RECOVERY CONSIDERATIONS

For issuers with IDRs of 'B+' and below, Fitch performs a recovery analysis
for each class of obligations of the issuer. The issue ratings are derived
from the IDR, the relevant RR and prescribed notching.

Fitch assumes a material loss in customers or significant integration issues
result in a loss of revenue around 20% with pro forma EBITDA margins declining
meaningfully due to the loss of higher margin business and fixed cost
deleveraging from the large decline in sales.

Fitch applies a 6.0x enterprise value/EBITDA multiple, modestly below the 6.3x
median multiple for Food, Beverage and Consumer bankruptcy reorganizations
analyzed by Fitch. The multiple reflects the company's leading position in its
formulation, packaging and manufacturing businesses, its diverse and sticky
customer relationships, and its lack of consumer brand recognition.

After deducting 10% for administrative claims, KDC's first lien secured credit
facility including revolver and term loan are expected to have average
recovery prospects (31%-50%) and have been assigned 'B-/RR4' ratings. The
revolver and term loan are secured by a first priority interest in
substantially all assets of the borrowers (Knowlton Development Corporation
Inc. and KDC US Holdings, Inc.) and the guarantors (material direct and
indirect wholly-owned U.S. subsidiaries).

ESG CONSIDERATIONS

Unless otherwise disclosed in this section, the highest level of ESG credit
relevance is a score of '3'. This means ESG issues are credit-neutral or have
only a minimal credit impact on the entity, either due to their nature or the
way in which they are being managed by the entity. For more information on
Fitch's ESG Relevance Scores, visit
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The
principal sources of information used in the analysis are described in the
Applicable Criteria.

KDC US Holdings, Inc.; Long Term Issuer Default Rating; Downgrade; B-; Rating
Outlook Stable
----senior secured; Long Term Rating; Downgrade; B-
Knowlton Development Corporation Inc.; Long Term Issuer Default Rating;
Downgrade; B-; Rating Outlook Stable
----senior secured; Long Term Rating; Downgrade; B-
Knowlton Development Holdco, Inc.; Long Term Issuer Default Rating; Downgrade;
B-; Rating Outlook Stable

Contacts:
Primary Rating Analyst
Lyle Margolis, CFA
Director
+1 646 582 3589
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004

Secondary Rating Analyst
Monica Aggarwal, CFA
Managing Director
+1 212 908 0282

Committee Chairperson
David Silverman, CFA
Senior Director
+1 212 908 0840

Media Relations: Elizabeth Fogerty, New York, Tel: +1 212 908 0526, Email:
elizabeth.fogerty@thefitchgroup.com

Additional information is available on
Applicable Model
Numbers in parentheses accompanying applicable model(s) contain hyperlinks to
criteria providing description of model(s).
Corporate Monitoring & Forecasting Model (COMFORT Model), v7.9.0 (1
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