TEXT - S&P: BWAY rtgs placed on watch neg
Overview -- BWAY today announced that it has entered into a definitive agreement to acquire Ropak Packaging (Ropak) from the LINPAC Group in a transaction valued at approximately $265 million. -- Ropak is a North American producer of rigid, plastic shipping containers serving the consumer goods, food processing, construction, dairy, petroleum and other industries. -- The transaction is subject to certain closing conditions, including receipt of regulatory approvals, and the company expects the closing to occur by year-end 2012 or January 2013. -- We are placing our ratings on BWAY, including the 'B' corporate credit rating, on CreditWatch with negative implications. This reflects our expectation that the acquisition will have a negative impact on the company's financial risk profile, which could lead to a downgrade. Rating Action On Dec. 3, 2012, Standard & Poor's Ratings Services placed its ratings, including its 'B' corporate credit rating, on BWAY Parent Co. Inc., BWAY Holding Co., and all rated subsidiaries (BWAY) on CreditWatch with negative implications. Rationale The CreditWatch placement reflects the likelihood that BWAY's financial risk profile will weaken beyond expectations at the current rating, given the expectation that the company will fund the Ropak acquisition with debt. The transaction will be financed by increasing the size of the company's existing term B loan. The CreditWatch listing will also address the potential for the ratings on the existing debt to be lowered as a result of the proposed new debt financing. Pro forma for Platinum Equity's recent acquisition of BWAY in November 2012, total adjusted debt-to-EBITDA is about 6.8x and funds from operations (FFO)-to-total adjusted debt is about 11.5%, as of BWAY's fiscal year-end on Sept. 30, 2012. We expect the company's FFO-to-total adjusted debt to be at the low end of the 10% to 15% range expected for the current rating. BWAY, with annual sales of about $1.2 billion, mainly produces plastic containers and general-line metal containers for packaging paints, solvents, and household products in the U.S. market. It's also North America's third-largest producer of aerosol cans, which represent about 12% of the company's sales. The rating on BWAY reflects our expectation of highly leveraged financial profile, which is reflected in the total adjusted debt-to-EBITDA of about 6.8x as of Sept. 30, 2012. It also reflects the company's very aggressive financial policies, exposure to volatile resin costs, and key industry risks, such as weak demand in the housing and industrial end markets. The company's good profitability and cash flow, market share gains from recent acquisitions, benefits from plant rationalization, favorably structured contracts, and cost-reduction efforts partly offset these weaknesses. We characterize BWAY's business risk profile as "fair" and its financial risk profile as "highly leveraged". CreditWatch We placed the ratings on CreditWatch with negative implications. We will monitor developments relating to this transaction and will resolve the CreditWatch listing once further details related to the transaction become available. We intend to meet with management to discuss a variety of topics related to the transaction, such as integration risks, synergies, the pro forma capital structure, and management's strategic objectives and financial policies. The CreditWatch placement indicates the heightened risk that we will likely lower the ratings following our review of the transaction and implications for credit quality. Related Criteria And Research -- U.S. Packaging Companies' Debt Is Rising, But Refinancing Risk Is Still Manageable, June 26, 2012 -- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012 -- Key Credit Factors: Methodology And Assumptions On Risks In The Packaging Industry, Dec. 4, 2008 Ratings List Ratings Placed On CreditWatch Negative BWAY Parent Co. Inc. BWAY Holding Co. BWAY Corp. To From Corporate Credit Rating B/Watch Neg/-- B/Stable/-- BWAY Parent Co. Inc. Senior Unsecured CCC+/Watch Neg CCC+ Recovery rating 6 6 BWAY Holding Co. Senior Secured B/Watch Neg B Recovery rating 3 3 Senior Unsecured CCC+/Watch Neg CCC+ Recovery rating 6 6
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