Approximately $17.6 billion of rated debt instruments affected
New York, February 09, 2012 -- Moody's Investors Service ("Moody's") assigned a Caa1 rating to Reynolds
Group Holdings Limited's ("RGHL") proposed $750 million new senior
unsecured notes due 2019. Moody's also affirmed Reynolds
B2 corporate family rating. The ratings outlook is negative.
Additional instrument ratings are detailed below.
The company will use the net proceeds of the offering to redeem and discharge
the $13.6 million outstanding aggregate principal amount
of the Graham Packaging 8.25% Senior Notes due 2017,
the $19.4 million outstanding aggregate principal amount
of the Graham Packaging 8.25% Senior Notes due 2018 and
the $354.5 million outstanding aggregate principal amount
of the Graham Packaging 9.875% Senior Subordinated Notes
due 2014 and to redeem, repay and/or discharge the $249.3
million outstanding aggregate principal amount of the Pactiv 5.875%
Notes due 2012. The remaining proceeds will be used for general
corporate purposes.
Following completion of the offering and the redemption and discharge
of the Graham Packaging Notes, Graham Holdings and certain of its
subsidiaries will guarantee the notes, the Existing Notes,
the 2007 Notes and our Senior Secured Credit Facilities.
Moody's took the following rating actions:
Reynolds Group Holdings Limited
-Affirmed B2 CFR
-Affirmed B2 PDR
The ratings outlook is negative
Reynolds Group Holdings Inc
-Affirmed Ba3 (LGD 2, 27% from 26%) rating
on US $2,000M Senior Secured Term Loan due 8/9/2018
-Affirmed Ba3 (LGD 2, 27% from 26%) rating
on EUR 80M Senior Secured Revolving Credit Facility due 11/5/2014
-Affirmed Ba3 (LGD 2, 27% from 26%) rating
on US $120M Senior Secured Revolving Credit Facility due 11/5/2014
-Affirmed Ba3 (LGD 2, 27% from 26%) rating
on US $2,325M Senior Secured Term Loan in 2/9/2018
-Affirmed Ba3 (LGD 2, 27% from 26%) rating
on EUR 250M Senior Secured Term Loan E in 2/9/2018
Reynolds Group Issuer Inc., Reynolds Group Issuer LLC,
Reynolds Group Issuer (Luxembourg) S.A.,
-Assigned Caa1 (LGD 5, 79%) to new US $750M
Senior Unsecured Notes due 2019
-Affirmed Ba3 (LGD 2, 27% from 26%) rating
on US $1,500M 7.875% Senior Secured Notes due
8/15/2019
-Affirmed Caa1 (LGD 5, 79% from 77%) rating
on US $1,000M 9.875% Senior Unsecured Notes
due 8/15/2019
-Affirmed Ba3 (LGD 2, 27% from 26%) rating
on US $1,125M 7.750% Senior Secured Notes due
10/15/2016
-Affirmed Ba3 (LGD 2, 27% from 26%) rating
on EUR 450M 7.750% Senior Secured Notes due 10/15/2016
-Affirmed Ba3 (LGD 2, 27% from 26%)rating on
US $1,500M 7.125% Senior Secured Notes due
04/15/2019
-Affirmed Ba3 (LGD 2, 27% from 26%) rating
on US $1,000M 6.875% Senior Secured Notes due
02/15/2021
-Affirmed Caa1 (LGD 5, 79% from 77%) rating
on US $1,000M 8.500% Senior Unsecured Notes
due 05/15/2018
-Affirmed Caa1 (LGD 5, 79% from 77%) rating
on US $1,500M 9.000% Senior Unsecured Notes
due 04/15/2019
-Affirmed Caa1 (LGD 5,79% from 77%) rating
on US $1,000M 8.250% Senior Unsecured Notes
due 02/15/2021
Beverage Packaging Holdings (Lux) II S.A.
-Affirmed Caa1 (LGD 5,79% from 77%) rating
EUR 480M 8.000% Senior Unsecured Notes due 12/15/2016
-Affirmed Caa1 (LGD 6, 96%) EUR 420M 9.5%
Sr. Subordinated Notes due 06/15/2017
Pactiv Corporation
-Affirmed Caa1 (LGD 6, 93%) rating on US $250M
5.875% Notes due 07/15/2012 (To be withdrawn after transaction
is completed)
-Affirmed Caa1 (LGD 6, 94% from 93%) rating
on US $300M 8.125% Bonds due 06/15/2017
-Affirmed Caa1(LGD 6, 94% from 93%) rating
on US $250M 6.400% Notes (approximately $16M
outstanding) due 01/15/2018
-Affirmed Caa1 (LGD 6, 94% from 93%) rating
on US $276.79M 7.950% Bonds due 12/15/2025
-Affirmed Caa1 (LGD 6, 94% from 93%) rating
on US $200M 8.375% Notes due 04/15/2027
Graham Packaging Company L.P.
-Affirmed Caa1 (LGD 5, 77%) rating on $253.38M
(approximately $14 million outstanding) Senior Unsecured Notes
due 1/1/2017 (To be withdrawn after transaction is completed)
-Affirmed Caa1 (LGD 5, 77%) rating on $250M
(approximately $19 million outstanding) Senior Unsecured Notes
due 10/1/2018 (To be withdrawn after transaction is completed)
-Affirmed Caa1 (LGD 6, 96%) on $355 million
Senior Subordinated Notes due 10/7/2014 (To be withdrawn after transaction
is completed)
RATINGS RATIONALE
The B2 corporate family rating reflects RGHL's weak pro-forma credit
metrics, integration risk and limited operating history for the
combined entity. The rating and outlook also reflect the company's
lengthy raw material cost pass-through provisions, concentration
of sales within certain segments and acquisitiveness/financial aggressiveness.
Additionally, the company has a complex capital and organizational
structure and is owned by a single individual. Pro-forma
leverage and debt to revenue are high at over 6.0 times and 100%
respectively (excluding synergies and including Moody's standard adjustments)
leaving the company little room within the rating category for negative
operating or integration variance. Additionally, pro-forma
EBIT to interest coverage is approximately 1 time and the company has
a significant percentage of variable rate debt. RGHL is still integrating
a large acquisition (Graham Packaging in September 2011) and several smaller
acquisitions. The company has only been operating as a combined
entity since 2007 and approximately 35% of pro-forma revenues
are from business which were acquired less than one year ago.
Strengths in the company's profile include anticipated positive free cash
generation and management's commitment to dedicate free cash flow to debt
reduction over the intermediate term and refrain from further significant
acquisition activity. Strengths in the company's profile also include
its strong brands and market positions in certain segments, scale
and high percentage of blue-chip customers. Despite the
anticipated significant increase in interest and other expenses,
RGHL is anticipated to continue to generate some level of free cash flow
which management has pledged will be applied to debt reduction.
Synergies from Pactiv, Graham and Dopaco (recently acquired) are
expected to help bolster free cash generation. The company has
strong brands and market positions and there are some switching costs
for customers in certain segments. Many of RGHL's businesses had
a history of strong execution and innovation prior to their acquisition
and much of the existing management teams were retained. Scale,
as measured by revenue, is significant for the industry and helps
RGHL lower its raw material costs. The company also has high exposure
to food and beverage packaging. RGHL is also expected to have adequate
pro-forma liquidity including adequate cushion under its financial
covenants following the credit facility amendment.
The negative rating outlook reflects the company's stretched financial
metrics, integration risk and limited room for negative operating
or integration variance.
The ratings could be downgraded if the company fails to improve credit
metrics on a sustainable basis, undertakes further significant acquisitions
and/or continues its aggressive financial policies. The ratings
could also be downgraded if there is deterioration in the operating and
competitive environment and/or the company fails to maintain adequate
liquidity including ample cushion under financial covenants. Specifically,
the ratings could be downgraded if debt to EBITDA remained above 6.0
times, EBIT to interest expense declined below 1.5 times,
free cash flow to debt declined below the low single digits, and/or
the EBIT margin decreased to below the high single digits.
The rating could be stabilized if the company sustainably improves its
credit metrics within the context of a stable operating and competitive
environment, maintains adequate liquidity including ample cushion
under financial covenants and pursues less aggressive financial policies.
Specifically, RGHL would need to improve debt to EBITDA to below
6.0 times, EBIT to interest expense to at least 1.5
times and free cash flow to debt to the mid single digits while maintaining
the EBIT margin in the high single digits.
The principal methodology used in rating Reynolds Group Holdings Limited
was the Global Packaging Manufacturers: Metal, Glass,
and Plastic Containers Industry Methodology published in June 2009.
Other methodologies used include Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009. Please see the Credit Policy page
on www.moodys.com for a copy of these methodologies.
REGULATORY DISCLOSURES
Although this credit rating has been issued in a non-EU country
which has not been recognized as endorsable at this date, this credit
rating is deemed "EU qualified by extension" and may still
be used by financial institutions for regulatory purposes until 30 April
2012. Further information on the EU endorsement status and on the
Moody's office that has issued a particular Credit Rating is available
on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Information sources used to prepare the rating are the following :
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not
an auditor and cannot in every instance independently verify or validate
information received in the rating process.
In addition to the information provided below please find on the ratings
tab of the issuer page at www.moodys.com, for each
of the ratings covered, Moody's disclosures on the lead rating
analyst and the Moody's legal entity that has issued each of the
ratings.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's provides a date that
it believes is the most reliable and accurate based on the information
that is available to it. Please see the ratings disclosure page
on our website www.moodys.com for further information.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Edward Schmidt
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Brian Oak
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's assigns Caa1 rating to Reynolds' new notes, affirms B2 CFR and negative outlook
