TEXT-Fitch affirms Crown Holdings ratings at 'BB+'
March 1 - Fitch Ratings has affirmed the ratings for Crown Holdings, Inc. (Crown), and its subsidiaries, Crown Cork & Seal Company, Inc. (CCS), Crown Americas, LLC. (CA), and Crown European Holdings, SA (CEH). The Rating Outlook is Stable. KEY RATING DRIVERS Support for Crown's ratings is due to the solid cash flows associated with its contractual commitments, stable demand characteristics, strong market share and cost pass-through despite current weakened global economic environment. Crown's geographical diversification across both mature and emerging markets with a diverse customer mix results in a balanced revenue stream that should lend greater stability through economic cycles. Fitch Ratings currently expects cash generation to increase over the long term due to past capital investments in developing market regions. Increased beverage can volume demand should continue across the majority of Crown's regions in 2013. Cost restructuring efforts in European food and aerosol should at least offset negative effects from economic pressure. Supply and demand characteristics should remain firm for most of Asia with 3.6 billion of capacity expansions, primarily outside of China expected in 2013. This comes after Crown added more than 4.1 billion in capacity across Asia with more than half within China the previous two years. Consequently, when combined with other beverage can capacity expansions, the can industry reported pricing pressures from regional imbalances in China during the fourth quarter. Crown has prudently pulled back on some expansion projects for 2013, reflecting the lower demand growth although the overall China market should continue strong growth this year to absorb the majority of the current imbalances. Past capacity rationalizations and selective-mix realignments by the can industry in its mature markets also provides pricing stability. Crown's liquidity is very good and includes its sustainable free cash flow (FCF) generation, cash and availability under its revolving facility and securitization programs. At the end of fourth quarter 2012, Crown had approximately $1.5 billion in liquidity primarily from its $1.2 billion secured credit facilities ($45 million drawn) that will mature in June 2015. In 2012, FCF (less minority distributions) was $266 million including insurance proceeds. In 2013, Fitch expects material growth in FCF to at least $380 million as a result of several factors. These include lower growth-related capital spending, expectations for completed restructuring projects, lower pension contributions, and ramp-up in productivity related to the organic capacity expansions. Crown has indicated initial capital spending estimates of $230 million for 2013 compared to spending of $324 million in 2012 and $401 million for 2011. Crown has considerable ability to move cash through various mechanisms to fund cash requirements in the U.S. Cash at the end of the fourth quarter 2012 was $350 million. At December 31, 2012, Crown had $100 million of available capacity under its $200 million North American facility that matures in December 2015 and $41 million of available capacity under a new Euro110 ($144) million European securitization facility maturing in July 2017. Crown targets the majority of its excess cash for shareholder friendly initiatives since Crown is within company leverage targets. Accordingly, almost three quarters of Crown's FCF during the past four years has been used for partner dividends or share repurchases. Expectations are for Crown to pace share repurchases to the level of free cash flow. Crown's board of directors has authorized a stock repurchase program of up to $800 million through the end of 2014. Crown also pays out approximately $80 to $85 million in minority distributions but does not have a dividend. Fitch does not expect any significant minority interest acquisitions given Crown's past focus. Crown's near- to medium-term maturities are relatively modest (under $150 million) during the next four years and are primarily related to term loan amortization. The term loans mature in June 2016. The next significant maturity for Crown's unsecured notes is Euro 500 million due in 2018. Crown has significant cushion under its present covenants. Leverage at the end of the fourth quarter of 2012 was approximately 3.3 times (x). Fitch views the top end of the expected leverage range for the rating below the low to mid 3x range. Fitch expects leverage will moderate going forward from term loan repayments and EBITDA growth. Credit risks which Fitch believes are manageable include the increase in revenue exposure to more volatile, higher-growth emerging markets, exposure to weather and crop disturbances affecting food pack, macro events outside the control of the company, the asbestos liability and pension deficit. In late 2011, Crown took steps to address its growing pension deficit in the U.S. with funding from proceeds of an add-on $350 million term loan that has substantially diminished any contribution requirements for the next couple of years. The GAAP funding levels at the end of 2012 for the U.S. and non-U.S plans were 80% and 87% on benefit obligations of $1.6 billion and $3.6 billion respectively. Crown expects pension contributions in 2013 of approximately $85 million, less than the $103 million in 2012. RATING SENSITIVITIES Negative: Future developments that may, individually or collectively, lead to negative rating include: --Crown adopting more aggressive financial policies or operating performance deteriorated resulting in material erosion to Crown's credit profile particularly pushing sustained leverage greater than 3.5x. --Large debt financed acquisition that would significantly increase leverage. --Considerable increase in asbestos liability. --Significant change in operating trends across the emerging market regions. --Macro events outside the company's control. --Significantly reduced free cash flow prospects. Positive: Crown would need to change its current financial policies. In particular, this would require the company to commit to a reduced, more conservative financial leverage policy, less than 2.5x, and increased free cash generation relative to adjusted debt greater than 10%. As a result, Fitch's sensitivities do not currently anticipate developments with a material likelihood, individually or collectively, of leading to a rating upgrade. Fitch affirms the following ratings: Crown: --Issuer Default Rating (IDR) at 'BB+'; CCS: --IDR at 'BB+'; --Senior unsecured notes at 'BB'; CA: --IDR at 'BB+'; --Senior secured term facility at 'BBB-'; --Senior secured revolving facility at 'BBB-'; --Senior unsecured notes at 'BB+'; CEH: --IDR at 'BB+'; --Senior secured euro term facility at 'BBB-'; --Senior secured euro revolving facility at 'BBB-'; --Senior unsecured notes at 'BB+'. Additional information is available at 'www.fitchratings.com'. The ratings above were unsolicited and have been provided by Fitch as a service to investors. The issuer did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure. Applicable Criteria and Related Research: --'Corporate Rating Methodology' (Aug. 8, 2012); Applicable Criteria and Related Research Corporate Rating Methodology
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