MOODY'S AFFIRMS THE RATINGS OF AMCOR LTD AND ITS GUARANTEED SUBSIDIARIES FOLLOWING ITS ANNOUNCEMENT TO SPIN OFF THE PAPER BUSINESS
New York , February 16, 2000 -- Hong Kong, February 17, 2000 -- Moody's Investors Service today affirmed the Baa1 senior unsecured and P-2 short-term ratings of Amcor Ltd's (Amcor) guaranteed subsidiaries. Moody's also affirmed Amcor's Baa2 senior subordinated debt and P-2 short-term ratings. This affirmation follows the announcement by Amcor that it plans to spin off its paper division, which will become a separately listed entity under a Scheme of Arrangement (the scheme). This affirmation reflects Moody's expectation that the scheme will proceed as contemplated, resulting in the loss of the historically more volatile paper business. Moody's expects that the de-merger will allow Amcor to focus on its packaging business, which generates stable operating cash flow and has good geographic diversification. Moody's also recognises the near term financial benefits of lower debt resulting from the scheme. The rating outlook is stable.
The ratings affirmed are:
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.(guaranteed by Amcor Ltd) - US$200M Commercial Paper Program, P-2
Sunclipse Inc. - US$125M Senior Notes guaranteed by Amcor Ltd, Baa1
Twinpak Inc. - US$75M Senior Notes guaranteed by Amcor Ltd, Baa1
According to Moody's, Amcor will retain the packaging business that accounted for over 70% of revenue and EBIT (earnings before interest and tax) in FYE30/6/99. Amcor's packaging business continues to generate stable operating cash flow from Australia, and maintains a strong international presence, with operations throughout 22 countries in North America, Europe and Asia. Moody's recognises that Amcor's management has made good progress in re-aligning the overseas packaging businesses, and rationalising the production capacities through a 3-year restructuring program. Moody's expects that the improvement in operational efficiency and cost saving achieved by the restructuring program will continue after the de-merger.
In addition, the resultant capital reduction of A$770M under the scheme will be offset by debt reduction. According to Moody's, debt reduction is likely to be temporary, as Amcor is expected to continue pursuing offshore expansion in packaging business, using debt to finance potential acquisitions. The company has also persisted with a high dividend policy, that has resulted in relatively weak cash flow relative to debt. Nevertheless, Moody's expects that the company's management will adopt a prudent financial policy in pursuing the growth strategy, with target net debt/equity not to exceed 50%. This will enable Amcor to maintain a financial profile consistent with the current rating level, and accordingly, rating outlook is stable. However, deviation from this debt policy will pressure the rating.
Amcor Limited, headquartered in Melbourne, Australia, is an international packaging and paper manufacturing company.
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