OREANDA-NEWS. Fitch Ratings has assigned a 'BB+/RR4' rating to Ball Corp.'s \$1 billion senior unsecured notes offering due 2025. The Rating Outlook is Stable.

The company intends to use the net proceeds from this offering to repay borrowings under the revolving credit facility and the balance, if any, for general corporate purposes subject to the provisions of the bridge term loan facility.

A full list of rating actions follows at the end of this release.

KEY RATING DRIVERS

Leverage High Post Close, Material Deleveraging Expected by 2017

The rating considers the expected material increase in Ball's leverage. Pro forma for the Rexam PLC (Rexam) transaction, Fitch expects leverage will be in the low- to mid-4x range at the end of 2016 depending on the extent of required divestitures. Ball's leverage was 2.6x at 2014 year end, which is in the typical range for the company as leverage has increased to 3.0x at the end of the first quarter 2015 due to seasonal working capital requirements. Ball and Rexam's combined FCF generation should allow the company to rapidly delever, primarily though debt reduction, although Fitch expects some benefit through execution of its synergy targets. During 2017, leverage should further decline to less than 3.5x, back within current negative rating sensitivities. Ball has a strong track record for deleveraging following large transactions, which is an important rating consideration.

Improved Business Risk Profile

Fitch believes the proposed \$8.4 billion acquisition of Rexam PLC will allow Ball to materially improve its business risk profile, profitability and financial flexibility owing to the combined capabilities, production efficiencies and scale of these No. 1 and 2 global beverage can manufacturers. Thus, the combination should improve Ball's competitive position to better optimize beverage can price to customers relative to other alternative packaging substrates. The transaction also provides access to additional geographies and new customers that will increase Ball's exposure to growing beverage segments along with the ability to better leverage specialty package technology and efficiencies.

Expected Net Synergies of Combined Company Meaningful

The combined company would have approximately \$15 billion in revenue and \$2.4 billion in adjusted EBITDA excluding considerations for asset divestitures. Fitch believes Ball should have opportunities to exceed the net synergy target of \$300 million on an annual basis. Non-recurring integration costs are estimated at approximately \$300 million over the first three years.

Closing Expected in First Half of 2016

The transaction, which is expected to close in the first half of 2016, is subject to approval from each company's shareholders, regulatory approvals and customary closing conditions. Given the substantial market concentration of the two companies across the U.S., Europe and South America, the regulatory process will be much longer than normal and could result in considerable divestitures if approved. A breakup fee that varies between ?43 million and ?302 million based on the break payment event is included in the co-operation agreement. Ball has the right to terminate the agreement in the event of an anti-trust material adverse effect if required asset divestitures by regulators are in excess of an aggregate \$1.58 billion.

Maturity Profile Extended

Ball's nearest term maturity, excluding securitization program, revolver debt and uncommitted lines, is \$750 million of senior notes due 2022. In March 2015, Ball redeemed \$1 billion of senior notes including \$500 million due in 2020 and \$500 million due in 2021 by drawing down on the \$3 billion revolving credit facility (RCF). Proceeds from this bond issuance will be used to pay down the RCF. The RCF commitment will step down dollar for dollar up to \$750 million.

KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for the issuer include:

--Regulatory approval is gained and antitrust related divestures are in the \$1 billion range which provides additional deleveraging benefits through debt reduction;
--A minimum of a 12-month regulatory review period that will allow Ball to meaningfully build excess cash;
--Ball will not repurchase any shares until net leverage decreases below 3x;
--Margin expansion of at least 150 basis points through 2018 driven by the increased scale and synergy opportunities;
--FCF approaching \$1 billion in 2017;
--2016 leverage would increase to the mid-4x range pro forma for the transaction, decreasing to less than 3.5x during 2017.

RATING SENSITIVITIES
Negative: Future developments that may, individually or collectively, lead to negative rating include:

--Sustained leverage greater than 3.5x;
--Significant revenue decline/pressure on EBITDA causing a material drop in profitability and lower cash generation;
--Change in financial policy or initiation of material share repurchases before net leverage is reduced below 3x following the close of the proposed acquisition.

Positive: Future developments that may, individually or collectively, lead to positive rating include:

Fitch does not view a ratings upgrade as likely at this time given the expected increase in leverage due to the proposed transaction.

LIQUIDITY

Ball has bolstered necessary liquidity required for the proposed transaction through a \$3 billion multicurrency RCF maturing in February 2018 and ?3.3 billion multicurrency bridge term loan facilities. The lengthy review period will also allow Ball and Rexam the opportunity to build cash in anticipation of the transaction closing to strengthen the balance sheets.

Currently, Ball has very good liquidity provided by the company's free cash flow (FCF), availability under its credit agreement, balance sheet cash and other facilities. FCF (net cash provided by operating activities less capital expenditures and dividends) for 2014 was \$549 million. Ball expects to generate at least \$500 million in FCF (Fitch defined) during 2015. At March 31, 2015, taking into account outstanding letters of credit and excluding availability under the accounts receivable securitization program, approximately \$1.7 billion was available under Ball's RCF.

Ball's securitization agreement, maturing May 2017, typically can vary between \$90 million and \$140 million depending on the seasonality of the company's business. The receivable securitization agreement totalled \$55 million at March 31, 2015. At the end of the first quarter 2015, Ball had cash of \$229 million. Ball also has material inter-company loans in Europe and China that allow for the company to transfer cash efficiently. The company has uncommitted, unsecured credit facilities, which Fitch views as a weaker form of liquidity. Ball had approximately \$741 million of uncommitted lines available of which \$227 million was outstanding and due on demand at the end of the first quarter 2015.

Expected financing for the transaction will include a mix of bank and unsecured debt, a significant equity component and excess cash. In order to mitigate its currency exchange rate risk due to the transaction, Ball entered into collar and option contracts from February 2015, through the expected acquisition closing date with an aggregate notional amount of approximately \$3.1 billion. Ball also entered into interest rate swaps in excess of \$1 billion to minimize its interest rate exposure associated with the anticipated debt issuances.

Fitch expects Ball will finance a substantial portion of the transaction with foreign currencies in various geographies, effectively mitigating the deleveraging risk from trapped foreign cash due to the significant international cash generation of the combined company.

FULL LIST OF RATING ACTIONS

Fitch has assigned the following rating:

--\$1 billion senior unsecured notes offering due 2025 rated 'BB+/RR4'.

Fitch has withdrawn the following rating:

--Senior secured term loan C facility at 'BBB-/RR1'.

Ball's existing ratings are as follows:

--IDR 'BB+';
--Senior unsecured debt 'BB+/RR4';
--\$3 billion senior secured RCF 'BBB-/RR1'.