Fitch Ratings affirms Ball's BB+ issuer default rating; outlook is stable
January 9, 2012
– Fitch Ratings has affirmed the Issuer Default Rating (IDR) and long-term debt ratings of Ball Corporation. The Rating Outlook is Stable.
The rating affirmation incorporates the company's solid cash flow generation, stable credit metrics, leading market positions in its product categories/market segments, and current expectations in the packaging end-markets. During the past couple of years, Ball has reduced overcapacity, removed fixed costs, divested lower margin commodity-oriented assets and rebalanced its mix. Consequently, operational focus has sharpened across its strategic footprint resulting in solid operating performance as EBIT improved in 2011.
Ball has very good liquidity resulting from cash generation, availability under its credit agreement and balance sheet cash. Free cash flow (CFO less capital spending less dividend) is expected to be in excess of $350 million for 2011. At the end of the third quarter, Ball had seasonally drawn $247 million on its $1 billion multicurrency revolver that matures in 2015. Ball has significant flexibility under its covenants and basket capacity. Cash was $190 million. Near-term maturities are minimal following the refinancing of its credit facilities in 2011. As such, the next material maturity occurs when the term loans mature in 2015.
Ball has additional liquidity through an accounts receivable securitization program. During 2011, Ball entered into a three-year receivable securitization agreement that can vary between $150 million and $275 million depending on the seasonality of the company's business. At Oct. 2, 2011, $265.8 million of 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 2011, Ball had up to $526 million of uncommitted lines available of which $149 million was outstanding and due on demand.
Leverage at the end of the third quarter 2011 was 2.9 times (x) and net leverage was 2.7x. This was within range of Ball's net leverage target goal of 2.5x. For 2012, Fitch does not expect any further debt reduction and leverage should remain in the upper 2x range absent considerations for a large acquisition. As a result, the company has significant flexibility when deploying its excess capital. In 2011, Ball spent close to $300 million on growth-related capital, $295 million on acquisitions and in excess of $500 million on gross share repurchases. Fitch expects with a significant portion of its growth related projects complete, capital spending will ramp down in 2012. Consequently, free cash flow levels should exceed $400 million in 2012. Share repurchases could approach similar levels depending on Ball's acquisition activity.
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. In addition, Ball's largest segment, the U.S. beverage-can along with the food-can segment represent mature business operations subject to volume-related pressure. Ball's exposure in Europe, while material is lower than most other packaging companies.
Longer-term, Ball is well positioned within certain emerging market segments to capture its fair share of growth from can conversions in these lower- penetrated markets. China represents the most important segment and Ball has the highest can market-share of any company. The market share concentration in China may, however, prevent further consolidation by Ball in this highly fragmented market due to governmental antitrust laws. Growth in these regions should more than offset volume related pressure in its mature markets and result in increased cash flows during the next several years
Fitch affirms the following ratings:
--IDR at 'BB+';
--Senior Unsecured Debt at 'BB+';
--Senior Secured Credit Facility at 'BBB-'.
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