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Rating Action:

Moody's affirms Silgan's ratings; stable outlook

16 Oct 2018

Approximately $3.4 billion of rated debt securities affected

New York, October 16, 2018 -- Moody's Investors Service ("Moody's") affirmed Silgan Holding's Inc.'s Ba2 Corporate Family Rating, Ba2-PD probability of default rating and SGL-2 Speculative Grade Liquidity Rating. The ratings outlook is stable. Moody's also assigned Ba1 ratings to the senior secured credit facilities after the company announced that it has extended the maturities on the facilities by one year. In addition, in this rating action, Moody's is correcting the issuer attribution for the Ba1 Senior Secured Canadian Term Loan and Senior Secured Canadian Revolving Credit Facility to reflect the appropriate issuing legal entity, which should be Silgan Plastics Canada Inc. rather than Silgan Holdings Inc. Moody's assigned a stable outlook to Silgan Plastics Canada Inc.

Assignments:

..Issuer: Silgan Holdings Inc.

....Senior Secured Term Loan A, Assigned Ba1 (LGD2)

....Senior Secured Revolving Credit Facility, Assigned Ba1 (LGD2)

..Issuer: Silgan Plastics Canada Inc.

....Canadian Senior Secured Term Loan A, Assigned Ba1 (LGD2)

....Canadian Senior Secured Revolving Credit Facility, Assigned Ba1 (LGD2)

Outlook Actions:

..Issuer: Silgan Holdings Inc.

....Outlook, Remains Stable

..Issuer: Silgan Plastics Canada Inc.

....Outlook, Changed To Stable From Rating Withdrawn

Affirmations:

..Issuer: Silgan Holdings Inc.

.... Probability of Default Rating, Affirmed Ba2-PD

.... Speculative Grade Liquidity Rating, Affirmed SGL-2

.... Corporate Family Rating, Affirmed Ba2

....Senior Unsecured Regular Bond/Debenture, Affirmed Ba3 (LGD5)

Withdrawals:

..Issuer: Silgan Holdings Inc.

....Senior Secured Bank Credit Facilities, Withdrawn , previously rated Ba1 (LGD2)

RATINGS RATIONALE

Silgan Holdings Inc. benefits from the consolidated industry structure in the company's metals segment (food can and metal closures) and strong market shares and contract structures in food cans. Silgan also benefits from the significant onsite presence with customers in the food can segment and the significant percentage of custom products in the plastics segment. The company remains focused on cost cutting and productivity. Silgan also maintains good liquidity.

The credit profile is constrained by the company's acquisitiveness, primarily commoditized product line and concentration of sales. Furthermore, the low growth in the food can market and the company's acquisition strategy will increase the overall business and credit risk over time. Contracts in the closures and plastics segments have relatively weaker terms than the food can segment. Moreover, the industry structure for the plastics segments is fragmented with significant competition.

Silgan's SGL-2 Speculative Grade Liquidity Rating reflects the company's good liquidity characterized by good availability on the company's revolver and adequate cash balances. The company usually draws extensively on its revolver during the second and third quarters to finance working capital due to the seasonality of its production. Draws on the revolver can remain high into the fourth quarter, as Silgan carries accounts receivable for some customers beyond the end of the packing season. Seasonal working capital requirements have been approximately $250-$400 million and were funded through a combination of revolver draws and cash on hand. The cash is expected to be held domestically in high quality instruments and easily accessed. The multi-currency revolver including $1.19 billion USD revolver and $15 million CAD revolver, expires in May 2023. Annual amortization for the term loans starts December 2019 and is 5%, 10%, 10%, 10%, and 10% with a bullet at maturity on May 30, 2024. There are no other significant debt maturities until the 5.5% senior unsecured notes mature in 2022. The financial covenants for the proposed credit facilities include a minimum interest coverage ratio and maximum total net leverage ratio. The cushion under the covenants is adequate. Moody's expects Silgan to continue to maintain sufficient cushion under its financial covenants.

The stable outlook reflects an expectation that Silgan's credit metrics will improve as the company benefits from completed efficiency initiatives and debt reduction.

The rating could be upgraded if Silgan sustainably improves credit metrics within the context of continued stability in the operating and competitive environment. Specifically the ratings could be upgraded if:

» Debt to EBITDA improves to below 3.8 times

» EBITDA to interest expense improves to over 5.5 times

» Funds from operation to debt improves to over 18.0%

Silgan's pro forma credit metrics are at the weak end of the rating category and the company will need to execute on its operating and integration plan and use its free cash flow accordingly to improve credit metrics to a level commensurate with the rating category. Additionally, continued acquisitions that alter the company's business and operating profile or significant debt financed acquisitions may also prompt a downgrade. The ratings could also be downgraded if there is deterioration in the operating and competitive environment. Specifically, the ratings could be downgraded if:

» Adjusted debt to EBITDA remains above 4.2 times

» Funds from operation to debt declines below 15.5%

» EBITDA to interest expense declines to below 5.0 times.

Headquartered in Stamford, Connecticut, Silgan Holdings Inc. (Silgan) is a manufacturer of metal and plastic consumer goods packaging products including food cans, closures for food and beverage products (both metal and plastic), and plastic containers for the personal care, health care, shelf-stable food, pharmaceutical, household and industrial chemicals industries. Consolidated net revenue for the 12 months ended June 30, 2018 was approximately $4.3 billion. Approximately 77% of sales are generated in the United States with the remainder generated from foreign operations. Approximately 30% of the outstanding stock is owned by the two founders of the company.

The principal methodology used in these ratings was Packaging Manufacturers: Metal, Glass, and Plastic Containers published in May 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit 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: 1 212 553 0376
Client Service: 1 212 553 1653

Brian Oak
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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