Fitch Rates Ball Corp's $600MM Senior Unsecured Notes 'BB+'
CHICAGO -- May 09, 2013
Fitch Ratings has assigned a 'BB+' rating to Ball Corp.'s $600 million senior
unsecured notes offering due 2023. The company intends to use a portion of the
net proceeds from this offering to pay the consideration in connection with
the tender offer for Ball's $375 million unsecured notes due 2016. The
remaining net proceeds will be used to repay borrowings under the revolving
credit facilities and for general corporate purposes. See the full list of
rating actions at the end of this release.
The unsecured notes will be fully and unconditionally guaranteed by certain of
Ball's existing and future domestic restricted subsidiaries that are
guarantors of Ball's other indebtedness. The notes will not be guaranteed by
any of Ball's foreign subsidiaries. The non-guarantor subsidiaries generated
39% of Ball's net sales and 61% of Ball's assets for the three months ending
March 31, 2013.
KEY RATING DRIVERS
The rating affirmation incorporates the company's diversified sources of 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 over the
longer term. During the past several years, Ball has continued to take steps
to reduce overcapacity, remove fixed costs, increase productivity and
rebalance its can mix. Consequently, Ball's on-going operational focus across
its strategic footprint has resulted in solid operating performance with
growing EBIT trends absent business restructuring costs.
Ball has very good liquidity resulting from cash generation, availability
under its credit agreement, and balance sheet cash. Fitch expects free cash
flow (FCF less capital spending less dividends) for 2013 in the range of $325
million-$350 million. This compares to $478 million for 2012, which was
materially higher than expectations due to the deferral of capital investment
into 2013 of approximately $100 million.
At the end of the first quarter of 2013 (1Q'13), Ball had cash of $208 million
and $494 million of availability on its $1 billion multicurrency revolver that
matures in 2015. Ball has significant flexibility under its covenants and
basket capacity. Additional liquidity is available 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 1Q'13, $171 million
accounts receivable were sold under the securitization agreement. This
compares to the end of 2012 when 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 1Q'13, Ball had up to
$635 million of uncommitted lines available of which $171 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 $291 million
outstanding. The next maturity with its senior notes is $325 million of 7.375%
notes due in 2019. Leverage at the end of the 1Q'13 was 3.3x, which is
seasonally higher due to working capital requirements than the end of 2012
when leverage was 2.8x. For 2013, Fitch expects leverage will reduce back down
to the upper 2x range absent considerations for a large unplanned acquisition.
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 $547 million on gross share
repurchases. Free cash flow (FCF) levels will be depressed in 2013 with
capital spending increasing to approximately $400 million. Beyond 2013, FCF
should increase materially as capital spending decreases. 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 company's acquisitive nature, 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 be lower at approximately $115 million than
the $155 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. In
the U.S., Ball is managing anticipated volume declines for 12-ounce containers
with growing demand for specialty cans. Ball's exposure in Europe, while
material, is lower than that of most other packaging companies. Europe's
performance in 1Q'13 was less than expectations due to weaker volumes given
the challenging economic and weather conditions in Europe, higher costs
related to a regional headquarters move and increased input costs. Ball is
also more exposed to beer, which had a soft first quarter.
Ball does have some increasing risk related to potential budget cuts in the
aerospace segment and medium-term overcapacity issues in China that has
affected pricing. Fitch believes Ball is well-positioned within the aerospace
segment and would not be materially affected by 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 likely be challenged though for at least the next two years
due to the highly fragmented market that has led to material overcapacity
resulting in pricing pressure. Fitch expects this should resolve over time as
demand remains strong 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 action include:
--Significant revenue decline / pressure on EBITDA causing sustained leverage
to increase greater than 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 action include:
--Commitment to a leverage target less than 2.5x;
--Margin expansion through improved operating performance;
--Sustained increase in FCF as a percent of debt greater than 10%.
Fitch has assigned the following rating:
--$600 million senior unsecured notes offering due 2023 rated 'BB+'.
Fitch has the following ratings for Ball Corp.:
--IDR at 'BB+';
--Senior Unsecured Debt at 'BB+';
--Senior Secured Credit Facility at 'BBB-'.
Additional information is available at 'www.fitchratings.com'.
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 St.
Chicago, IL 60602
Brian Bertsch, New York, +1 212-908-0549
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