TEXT-Fitch affirms Ball Corp's ratings at 'BB+'
Feb 21 - Fitch Ratings has affirmed the Issuer Default Rating (IDR) and long-term debt ratings of Ball Corporation. The Rating Outlook is Stable. KEY RATING DRIVERS The rating affirmation incorporates the company's solid cash flow generation, stable credit metrics, leading market positions in the majority of its product categories/market segments, and current expectations for increased global beverage volume in the packaging end-markets. During the past several years, Ball has reduced overcapacity, removed fixed costs, increased utilization rates and rebalanced can mix. Consequently, operational focus has continued across its strategic footprint resulting in solid operating performance with growing EBIT absent business restructuring costs. Ball has very good liquidity resulting from cash generation, availability under its credit agreement and balance sheet cash. Free cash flow (FCF) -- CFO less capital spending, less dividend -- was $478 million for 2012, materially higher than expectations due to the deferral of capital investment into 2013 of approximately $100 million. At the end of 2012, Ball had drawn $210 million on its $1 billion multicurrency revolver that matures in 2015. Ball has significant flexibility under its covenants and basket capacity. Cash was $174 million. Ball has additional liquidity through a U.S. accounts receivable securitization program that matures in 2014. Ball's securitization agreement can vary between $110 million and $235 million depending on the seasonality of the company's business. At the end of 2012, no 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 2012, Ball had up to $476 million of uncommitted lines available of which $154 million was outstanding and due on demand. Near-term maturities are minimal with the next material maturity occurring when the term loans mature in 2015. The term loans currently have $321 million outstanding. The next maturity with its senior notes is $375 million of 7.125% notes due in 2016. These notes are callable in September 2013. Fitch expects Ball will opportunistically refinance higher coupon debt going forward. Leverage at the end of 2012 was 2.8x with net leverage of 2.7x. This was within Fitch expectations and is within range of Ball's net leverage target goal of 2.5x. For 2013, Fitch does not expect any further debt reduction with leverage remaining 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 2012, Ball spent in excess of $100 million on growth-related capital, $71 million on acquisitions and almost $500 million on gross share repurchases. With capital spending increasing to approximately $400 million, FCF levels should be at least $325 million for 2013. Share repurchase activity should pace on par with FCF. 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. Pension contributions in 2013 will likely be lower than the approximate $150 million contribution in 2012. Accordingly, Ball has more than sufficient capacity to fund its pension deficit from existing cash flows. Ball's largest segment, the U.S. beverage-can along with the food-can segment represents mature business operations subject to volume-related pressure. Ball's exposure in Europe, while material is lower than most other packaging companies. Ball's operating performance in Europe has generally outperformed most other corporates across other industry segments. Ball does have some increasing risk related to potential budget cuts in the aerospace segment and medium-term over capacity issues in China that has affected pricing. Fitch believes Ball is well-positioned within the aerospace segment and would not be materially affected with possible sequestration cuts particularly as the aerospace segment represents approximately 10% of operating profit. In China, Ball's leading market share positions the company to capture its share of growth from can conversions in these lower- penetrated markets. Profitability will be challenged though for at least the next two years due to the highly fragmented market that has caused material overcapacity resulting in pricing pressure. Fitch expects this should resolve over time due to market growth and possibly through consolidation opportunities. However, Ball's market share concentration in China may prevent further consolidation due to governmental antitrust laws. RATING SENSITIVITIES Negative: Future developments that may, individually or collectively, lead to negative rating include: --Significant revenue decline / pressure on EBITDA causing sustained leverage to increase greater 3.5x --Large debt financed acquisition that would significantly increase leverage. --Change in financial policy /aggressive share repurchase Positive: Future developments that may, individually or collectively, lead to positive rating include: --Commitment to a leverage target less than 2.5x --Margin expansion through improved operating performance --Sustained increase in FCF as a % of debt greater than 10% Fitch affirms the following ratings: Ball Corporation --IDR at 'BB+'; --Senior Unsecured Debt at 'BB+'; --Senior Secured Credit Facility at 'BBB-'. Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable Criteria and Related Research: --'Corporate Rating Methodology' (Aug. 8, 2012). Applicable Criteria and Related Research: Corporate Rating Methodology