Rank’s Pactiv Buyout May Use Up to $5 Billion of Debt

Rank Group Ltd., owned by New Zealand’s richest man, Graeme Hart, may borrow as much as $5 billion to help pay for its acquisition of Pactiv Corp., the maker of Hefty trash bags.

Credit Suisse Group AG, HSBC Holdings Plc and Australia & New Zealand Banking Group Ltd. agreed to provide the debt, Lake Forest, Illinois-based Pactiv said today in a regulatory filing. If the banks provide the full amount, Rank Group would finance 83 percent of the $6 billion takeover with borrowed money.

The buyout is the biggest for Hart, who amassed a fortune investing in businesses from lumber to dairy and built a global packaging empire through takeovers. The transaction will fold Pactiv into Rank Group’s Chicago-based unit Reynolds Group Holdings Ltd., which has “considerably weaker credit metrics” and is rated “significantly” lower, Moody’s Investors Service said today in a report.

Petra Beck, a spokeswoman for Reynolds in Switzerland, couldn’t be reached for comment after regular business hours. Pactiv spokesman Matthew Gonring couldn’t immediately comment.

Reynolds will raise the money for the purchase through new term loans under its existing credit agreement, by selling senior notes or through other means, according to today’s filing. Moody’s rates the company B2, five levels below investment grade. Reynolds has a leverage ratio of about 6 times, according to the Moody’s report.

Possible Downgrade

Pactiv’s senior unsecured debt is rated Baa2, the second lowest investment quality, New York-based analysts Glenn Eckert and Edward Schmidt said in their report. They said the rating is under review for a possible downgrade, citing the acquisition. Pactiv’s debt to earnings before interest, taxes, depreciation and amortization is 3.4 times, according to the report.

Rank’s Reynolds agreed to buy Pactiv for $33.25 a share, 39 percent more than the $23.97 close on May 14, before talks were disclosed. Rank Group will assume about $1.5 billion in debt as part of the transaction.

-- With assistance from Carol Wolf in Washington. Editors: Faris Khan, Chuck Stevens

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