Moody's Investors Service – the rating unit of Moody's Corporation (MCO) – assigned Baa1 ratings to the proposed senior secured credit facilities and senior secured term loans of Crown Americas LLC, Crown European Holdings S.A. and Crown Metal Packaging Canada L.P. All three are units of Crown Holdings Inc. (CCK).
Moody's also confirmed Crown's Ba1 corporate family rating (CFR). The rating is attributable to the company’s strong free cash generation and commitment to reduce the amount of debt.
In addition, Crown's probability of default (PDR) rating has been confirmed at Ba1-PD. Speculative grade liquidity (SGL) rating was affirmed at SGL-2. Moody's gave Crown a stable ratings outlook.
These ratings came on the back of improved leverage. Pro forma leverage ratio rose to 5.3 times as of Sep 30, 2013, but is expected to decline to around 4.8 times by year-end as Crown's peak working capital season winds down and it repays debt with its strong free cash flow.
On Oct 31, 2013, Crown entered into an agreement to acquire Mivisa Envases, S.A.U., a Spanish food-can producer for €1.2 billion (around $1.65 billion) to expand into the Iberian Peninsula and Morocco markets. The acquisition, which is subject to review by the European Commission and other authorities, is expected to close during 2014.
Moody's ratings confirmation also reflects the benefits of the acquisition which includes projected synergies of $34 million by 2016 and the advantages from Mivisa's newer facilities and operating model.
However, the rating agency is apprehensive about changes in the amount of outstanding unsecured debt. Moody's also stated that the ratings could be downgraded if the earnings before interest, tax, depreciation and amortization (EBIT) interest coverage stays below 3.7 times, leverage remains above 3.8 times and free cash flow to debt continues below 8.5%.
Crown, which belongs to the containers and packaging industry along with Ball Corporation (BLL - Analyst Report) and EveryWare Global, Inc. , reported third-quarter 2013 adjusted earnings of $1.13 per share, up 13% year over year, on strong sales. Gross margin expanded 50 basis points (bps) to 16.5% in the quarter. Additionally, operating margin increased 50 bps to 12.5%.
Crown aims to expand the beverage cans volume worldwide, especially in the growth markets. In addition, management remains optimistic about performance, based on a balanced product portfolio and availability of high quality metal packaging. These will drive future unit volume, free cash flow and profit growth.
Philadelphia-based Crown is a leading supplier of packaging products to consumer marketing companies. The company manufactures aluminum beverage cans, food cans, aerosol cans and other packaging products.
Crown Holdings currently retains a Zacks Rank #3 (Hold).