Fitch Ratings has assigned a 'BB' rating to Ball Corp.'s (NYSE: BLL) $450 million senior unsecured notes offering due 2020. Proceeds from the offering, together with borrowings under its revolving credit facility, accounts receivable securitization facility or cash on hand will be used to retire $509 million of 6.875% senior notes due December 2012. The Outlook is Stable.
Ball's ratings incorporate the company's solid cash flow generation, stable credit metrics, leading market positions in its product categories, and current expectations in the packaging end markets. Ball has aggressively reduced overcapacity and higher fixed costs by closing numerous facilities in North America. Annualized cost reductions from the facility closings are expected to exceed $80 million over time. With facility cost reductions, coupled with additional ongoing cost savings with corporate overhead and other initiatives, Fitch expects Ball to realize cost benefits into 2010 while continuing to improve profitability margins.
Current maturities at the end of 2009 were $313 million, which included $64 million under uncommitted bank facilities. Ball's debt includes four term loans with accompanying multicurrency revolvers under a senior secured credit facility. The secured credit facilities and approximately $836 million of term loans all mature in October 2011. The senior credit facilities bear interest at variable rates and include the following: 1) a multicurrency, long-term revolving credit facility that provides the company with up to $700 million; 2) a Canadian long-term revolving credit facility that provides the company with up to $35 million; 3) term loans A-D denominated in euros, British pounds, and Canadian and U.S. dollars. In July 2009, Ball entered into a second amendment to its credit agreement. The amendment, among other things, modified the voluntary prepayment provisions of the credit agreement to allow the company to designate that prepayments be applied to any specified scheduled payments due within 12 months of such prepayment. Consequently during 2009, Ball reduced its term loan by approximately $242 million, with a portion of that reduction due to voluntary prepayments through September 2010 for term loan D (U.S.) and through June 2010 for Euro term loan B. As the final maturity approaches for Ball's secured term loans in 2011, amortization requirements ramp up materially as of the fourth quarter 2010. During the upcoming quarters, Fitch expects the company to replace the existing facility and term loans ahead of its maturity.
The company's liquidity is good and was in excess of $800 million at the end of 2009, comprised of $211 million in cash and more than $600 million of revolver availability. Ball has a $250 million accounts receivable securitization program with net funds totaling $250 million at the end of 2009. Free cash flow was $335 million for 2009. Ball expects free cash flow of approximately $500 million with the increase largely from a working capital reversal and contributions from the recently acquired can operations. Capital spending is expected to increase by approximately $50 million to $235 million. During 2009, Ball had reprioritized the use of its FCF to focus on debt reduction instead of share repurchases. At the end of 2009, leverage improved moderately to 2.7 times (x) from a peak following the acquisition of 3.0x. Fitch expects leverage to improve to less than 2.5x by the end of 2010. With the improvement in credit metrics and strong free cash flow in 2009, Ball initiated a privately negotiated accelerated stock repurchase of approximately $125 million in February 2010.
Ball's total pension deficit decreased only slightly in 2009 to approximately $603 million on a global obligation of $1.6 billion. The pension liability in the U.S. decreased from $276 million in 2008 to $222 million in 2009. The foreign pension liability increased to $381 million compared to $342 million in 2008, with the German pension obligation representing $331 million of the 2009 liability. The German pension plan obligation is unfunded, and the liability is included on the company's consolidated balance sheet. Ball is expected to decrease its worldwide pension contributions in 2010 to under $80 million compared with payments of approximately $120 million in 2009, with a portion of those payments prefunded. Payments to participants in the German plan are expected to be approximately $25 million in each of the next five years. Depending on many assumptions and market conditions, this obligation could continue to grow over time and consume a larger percentage of FCF.
The terms and conditions of the debt issuance are similar to the senior notes due 2016 and 2019 that Ball issued in August 2009. The terms and conditions in the unsecured notes due 2012 were considered the most restrictive in Ball's capital structure.
These rating actions reflect the application of Fitch's current criteria which are available at www.fitchratings.com and specifically include the following reports:
--'Corporate Rating Methodology' (Nov. 24, 2009);
--'Liquidity Considerations for Corporate Issuers' (June 12, 2007).
Additional information is available at www.fitchratings.com. The issuer did not participate in the rating process other than through the medium of its public disclosure.
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Fitch Ratings, Chicago
Bill Densmore, +1-312-368-3125
Dave
Peterson, +1-312-368-3177
or
Cindy Stoller, +1-212-908-0526
(Media
Relations, New York)
cindy.stoller@fitchratings.com
