Ball levers up for Rexam purchase but promises deleveraging to 3x area

By Paul Deckelman

New York, Oct. 8 – Ball Corp. will be taking on considerable new debt for its pending acquisition of sector peer Rexam plc.

But while the Broomfield, Colo.-based manufacturer of metal food and beverage containers, aerosol cans and aerospace technology products expects to see its leverage ratio of net debt as a multiple of EBITDA rise to around the 4.5 times mark from last year’s level of around 2.5 times, company executives said Thursday that it will not stay up there.

Addressing the Goldman Sachs EMEA Leveraged Finance Conference in London, the company’s senior vice president and chief financial officer, Scott C. Morrison, and its vice president and treasurer, Jeff Knobel, told investors that given the company’s already strong cash-generation abilities – it has generated a total of more than $4.5 billion of free cash flow since 2004 – Ball is committed to rapid deleveraging, aided by the additional cash flow it expects from the integration of London-based beverage can maker Rexam.

Once the deal closes, which is expected to occur sometime in the first half of next year, Ball’s game plan is to bring leverage back down to around the 3.0 times mark by 2018.

According to slides on the company website prepared for use during its Goldman Sachs presentation, Ball has a considerable history of substantial deleveraging after sizable accretive acquisitions, including its $746 million purchase in 1998 of the domestic metal-container beverage assets of what was then the Reynolds Metals Co. (now Reynolds Group Holdings). Post-transaction leverage of around 4.0 times had come down by more than one full turn by the following year.

Leverage spiked back up to around the 4.5 times mark in 2002 when the company incurred debt to finance its €900 million acquisition of German can manufacturer Schmalbach-Lubeca AG, but then too leverage had come back down to around 3.0 times by the end of the following year.

A similar trajectory of leveraging followed by deleveraging was also seen with Ball’s 2006 purchase of the United States and Argentinian operations of aerosol can manufacturer U.S. Can Corp. for about 1.1 million shares of Ball common stock and the repayment of about $550 million of U.S. Can's debt and with the company’s 2009 acquisition of U.S. beverage canning plants from global brewing giant InBev for $577 million.

Acquisition funding for Rexam

The Rexam transaction is considerably larger. The deal has an equity value of £4.3 billion, or $6.6 billion, and a total enterprise value of £5.4 billion, or $8.4 billion, including Ball’s assumption of Rexam’s net debt.

Ball’s acquisition financing for the Rexam deal will consist of a £3.3 billion unsecured bridge loan, a $2.25 billion multicurrency revolving credit facility and $2.2 billion of new equity. Ball expects to replace the bridge loan debt with a combination of bank loans and public notes. Ball originally put the size of the multicurrency revolver at $3 billion, but that was reduced following the company’s issuance of $1 billion of new 5¼% senior notes due 2025, which priced at par in a quick-to-market offering on June 22.

According to its most recent 10-Q filing with the Securities and Exchange Commission, as of the end of the second quarter on June 30, the company’s total debt stood at just under $3 billion. Besides the aforementioned $1 billion of new 10-year notes, the capital structure also included $750 million of 5% notes due 2022, $1 billion of 4% notes due 2023 and $100 million drawn on the multicurrency revolver, which matures in 2018.

The company had $2.1 billion of revolver availability plus about $749 million of short-term uncommitted credit facilities available, of which $157.6 million was outstanding and due on demand. It also had $227 million of cash and equivalents on its balance sheet.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.