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08 May 2002
MOODY'S AFFIRMS Baa1/P-2 RATINGS OF AMCOR LTD AND ITS GUARANTEED SUBSIDIARIES; ASSIGNS Baa2 RATING TO THE PROPOSED PACRS 2: OUTLOOK REMAINS NEGATIVE
Hong Kong, May 8, 2002 -- Moody's Investors Service today affirmed the Baa1 senior unsecured rating, Baa2 sub-debt rating, and P-2 short-term ratings of Amcor Ltd (Amcor) and its guaranteed subsidiaries. This rating action follows the announcement by Amcor of its proposed acquisition of the PET and closures business of German-based packaging company Schmalbach-Lubeca AG at a price of Euro 1,725M. The affirmation reflects Moody's expectation that the acquisition will proceed as planned, and be funded by a mix of equity/cash (60%) and debt/hybrid (40%). At the same time, Moody's has assigned a Baa2 rating to the proposed A$200M Perpetual Amcor Convertible Reset Securities Series 2 (PACRS 2), reflecting the issue's subordinated status to Amcor's senior unsecured obligations. The rating outlook remains negative.
The ratings affirmed:
Amcor Ltd - US$200M Senior Subordinated Convertible Notes, Baa2
Amcor Ltd - A$250M Commercial Paper Program, P-2
Amcor Ltd and Amcor Finance (USA), Inc. - US$200M Commercial Paper Program, P-2
Sunclipse Inc. - US$125M Senior Notes guaranteed by Amcor Ltd, Baa1
Amcor Investment (New Zealand) Ltd - A$400M PACRS, Baa2
New rating assigned:
Amcor Investment (New Zealand) Ltd - A$200M PACRS 2, Baa2
Moody's says that the affirmation reflects the strengths of Amcor post-acquisition: diversified geographic operations and leading positions in the global PET, European flexible packaging, and Australia packaging industry. Moody's considers that the proposed acquisition is in line with Amcor's core business growth strategy, and brings the benefits of further business and geographic diversification. In addition, the acquisition will position Amcor as the largest PET operator globally, with the scale and coverage to better serve its key customers, and to capture the growth potential in the global PET industry. The current ratings also acknowledge Amcor's strong competitive position in the Australian packaging industry, which continues to generate stable operating cash flow to fund its overseas expansion.
Moody's also recognises that Amcor's management has successfully realigned the business portfolio, transforming Amcor from an Australian paper and packaging company to become a diversified packaging products company, with strong international presence. Amcor's packaging business, with the majority of sales to the food and beverage industry, is demonstrably more stable.
Moody's expects that the proposed acquisition will be funded by A$600M equity, A$200M PACRS, and A$2,120M bridge financing, as presented by the management. The bridge financing will be taken out by A$700M sale proceeds of Amcor's remaining 45% stake in Kimberly-Clark Australia, A$800M proposed medium term notes issuance, A$200M bank debt and A$420M equity issue through the conversion of the Deferred Equity Rights in Nov 2002 and May 2003. In Moody's opinion, the total A$1,020M new equity to fund the acquisition will largely mitigate the increase in the debt level.
The proposed acquisition is on top of Amcor's A$370M purchase of CNC in February 2002, and A$718M 3-way merger to form the largest European flexible packaging operation in June 2002. Moody's considers that the acquisition activities in the last 18 months reflect a higher level of event risk for the rating. In addition, given the size of the proposed transaction, it remains a challenge for Amcor's management to successfully integrate the new business, and to achieve the projected synergies and operating results in the near term. The rating outlook is therefore negative.
Moody's also considers that Amcor has demonstrated strong appetite to participate in the consolidation of the global packaging industry. Moody's expects that management will continue to adopt prudent financial policies in pursuing its growth strategy, and maintain target financial ratios: Net Debt/Cap not more than 45% and EBITDA interest coverage above 6x. Any deviation from this expectation will pressure the rating.
Moody's recognises that Amcor's management regards the PACRS 2 as equity and therefore as enhancing the balance sheet flexibility. In Moody's opinion, the "no maturity" and "loss absorption" features of the PACRS 2 are potentially limited by the ability of Amcor to encourage non-conversion at reset. Moody's also regards it as unlikely that Amcor will not pay the dividend except in extreme circumstances. The company may actively seek to avoid dilution of its earnings per share at a time of reduced earnings by increasing the dividend rate of the PACRS 2 at reset. This may discourage conversion and thus increase fixed charge-like demands on cash flow. For the aforementioned reasons, Moody's considers the PACRS 2 as more debt like instrument, which is ranked pari passu to the company's existing subordinated convertible notes. On the positive side, Moody's comments that the note could develop benefits for Amcor's capital structure in an up-turning share price environment.
Amcor Limited, headquartered in Melbourne, Australia, is an international packaging product manufacturing company, with operations throughout 29 countries in North America, Europe and the Asia Pacific region.
No Related Data.
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