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.
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:
--Issuer Default Rating (IDR) at 'BB+';
--IDR at 'BB+';
--Senior unsecured notes at 'BB';
--IDR at 'BB+';
--Senior secured term facility at 'BBB-';
--Senior secured revolving facility at 'BBB-';
--Senior unsecured notes at 'BB+';
--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