Fitch Affirms Ball's Ratings at 'BB+'
CHICAGO -- February 21, 2013
Fitch Ratings has affirmed the Issuer Default Rating (IDR) and long-term debt
ratings of Ball Corporation. The Rating Outlook is Stable.
KEY RATING DRIVERS
The rating affirmation incorporates the company's solid cash flow generation,
stable credit metrics, leading market positions in the majority of its product
categories/market segments, and current expectations for increased global
beverage volume in the packaging end-markets. During the past several years,
Ball has reduced overcapacity, removed fixed costs, increased utilization
rates and rebalanced can mix. Consequently, operational focus has continued
across its strategic footprint resulting in solid operating performance with
growing EBIT absent business restructuring costs.
Ball has very good liquidity resulting from cash generation, availability
under its credit agreement and balance sheet cash. Free cash flow (FCF) -- CFO
less capital spending, less dividend -- was $478 million for 2012, materially
higher than expectations due to the deferral of capital investment into 2013
of approximately $100 million. At the end of 2012, Ball had drawn $210 million
on its $1 billion multicurrency revolver that matures in 2015. Ball has
significant flexibility under its covenants and basket capacity. Cash was $174
Ball has additional liquidity through a U.S. accounts receivable
securitization program that matures in 2014. Ball's securitization agreement
can vary between $110 million and $235 million depending on the seasonality of
the company's business. At the end of 2012, no accounts receivable were sold
under this agreement. Ball also has uncommitted, unsecured credit facilities,
which Fitch views as a weaker form of liquidity. At the end of the third
quarter 2012, Ball had up to $476 million of uncommitted lines available of
which $154 million was outstanding and due on demand.
Near-term maturities are minimal with the next material maturity occurring
when the term loans mature in 2015. The term loans currently have $321 million
outstanding. The next maturity with its senior notes is $375 million of 7.125%
notes due in 2016. These notes are callable in September 2013. Fitch expects
Ball will opportunistically refinance higher coupon debt going forward.
Leverage at the end of 2012 was 2.8x with net leverage of 2.7x. This was
within Fitch expectations and is within range of Ball's net leverage target
goal of 2.5x. For 2013, Fitch does not expect any further debt reduction with
leverage remaining in the upper 2x range absent considerations for a large
As a result, the company has significant flexibility when deploying its excess
capital. In 2012, Ball spent in excess of $100 million on growth-related
capital, $71 million on acquisitions and almost $500 million on gross share
repurchases. With capital spending increasing to approximately $400 million,
FCF levels should be at least $325 million for 2013. Share repurchase activity
should pace on par with FCF.
Risks are reflected in the rating and, in Fitch's opinion, are quite
manageable. These include the acquisitive nature of the company, the risks
inherent within the packaging segment including emerging markets risk and
revenue/customer concentration, as well as its underfunded pension plans.
Pension contributions in 2013 will likely be lower than the approximate $150
million contribution in 2012. Accordingly, Ball has more than sufficient
capacity to fund its pension deficit from existing cash flows.
Ball's largest segment, the U.S. beverage-can along with the food-can segment
represents mature business operations subject to volume-related pressure.
Ball's exposure in Europe, while material is lower than most other packaging
companies. Ball's operating performance in Europe has generally outperformed
most other corporates across other industry segments.
Ball does have some increasing risk related to potential budget cuts in the
aerospace segment and medium-term over capacity issues in China that has
affected pricing. Fitch believes Ball is well-positioned within the aerospace
segment and would not be materially affected with possible sequestration cuts
particularly as the aerospace segment represents approximately 10% of
In China, Ball's leading market share positions the company to capture its
share of growth from can conversions in these lower- penetrated markets.
Profitability will be challenged though for at least the next two years due to
the highly fragmented market that has caused material overcapacity resulting
in pricing pressure. Fitch expects this should resolve over time due to market
growth and possibly through consolidation opportunities. However, Ball's
market share concentration in China may prevent further consolidation due to
governmental antitrust laws.
Negative: Future developments that may, individually or collectively, lead to
negative rating include:
--Significant revenue decline / pressure on EBITDA causing sustained leverage
to increase greater 3.5x
--Large debt financed acquisition that would significantly increase leverage.
--Change in financial policy /aggressive share repurchase
Positive: Future developments that may, individually or collectively, lead to
positive rating include:
--Commitment to a leverage target less than 2.5x
--Margin expansion through improved operating performance
--Sustained increase in FCF as a % of debt greater than 10%
Fitch affirms the following ratings:
--IDR at 'BB+';
--Senior Unsecured Debt at 'BB+';
--Senior Secured Credit Facility at 'BBB-'.
Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012).
Applicable Criteria and Related Research:
Corporate Rating Methodology
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Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
Brian Bertsch, +1-212-908-0549 (New York)
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