Crown Holdings aims for 3 times leverage by end of 2017, cut debt in Q3, first nine months

By Paul Deckelman

New York, Oct. 20 – Crown Holdings, Inc. has set a goal of bringing its leverage ratio of debt as a multiple of EBITDA down to 3 times by the end of next year.

However, the Philadelphia-based maker of food, beverage and aerosol cans and other metal containers has not completely ruled out the idea of returning some of its free cash flow to shareholders in the form of dividends, which it currently does not pay.

During its Thursday conference call following the release of financial results for its 2016 third quarter ended Sept. 30, the company’s president and chief executive officer, Timothy J. Donahue, told analysts that “if you look at our leverage, we’re going to end this year at about 3.3 [times] - 3.4 [times]. We’ve always said that our target is 3 times.”

During the question-and-answer portion of the call that followed his own presentation and that of chief financial officer and senior vice president Thomas A. Kelly, the CEO told an analyst who asked whether Crown might consider instituting a shareholder dividend that “we have a board of directors, and so it would be a bit premature for me to comment on that.

“It’s something we review with the board from time to time and perhaps we’ll review it at the upcoming board meetings.”

Donahue continued that “we can clearly see the path to getting to 3 times by the end of 2017.”

He then said that “the question becomes – as we’ve said before – do you really need to get to 3 times before you begin to return [capital] to shareholders? Or, once you see the clear path to there, do you start your return scenario before you get to the 3 times, knowing that you’re going to get there over a two- or three-year period, as opposed to a one-year period?”

Donahue declined to answer his own hypothetical question, instead reiterating that “I think that’s a decision we’ll make after consulting with the board.”

At the end of the third quarter Crown’s balance sheet showed total debt of $5.27 billion, down from $5.75 billion a year earlier.

The company had $5.10 billion of long-term debt less current maturities, down from $5.54 billion a year ago.

Current maturities of long-term debt stood at $121 million, down from $142 million, while short-term debt had declined to $49 million from $61 million.

Interest costs decline

Kelly said that the company’s interest costs during the quarter were “a little lower on a cash basis because of the timing on a refinancing we just did.”

On Sept. 8, the company priced an upsized amount of senior bullet notes in a two-part dual-currency, regularly scheduled transaction off the forward calendar.

Its Crown European Holdings SA unit priced an upsized €600 million of eight-year notes at par to yield 2 5/8% after the tranche size was increased from an originally announced €310 million.

Meanwhile its Crown Americas LLC and Crown Americas Capital Corp. subsidiaries priced an upsized $400 million of 10-year notes at par to yield 4¼% after that tranche size was increased from $350 million originally.

Crown said that it would use the new-deal proceeds to repay a portion of its term loan A facilities and for general corporate purposes.

Crown said in its earnings release Thursday that interest expense for the third quarter was $59 million, versus $68 million a year ago, while interest expense for the first nine months of the year came to $181 million, down from $202 million in the same period of 2015, with both reductions primarily due to lower outstanding debt.

© 2015 Prospect News.
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