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Rating Action:

Moody's assigns B3 CFR to BWAY Intermediate; outlook negative

31 Jul 2014

Approximately $1.9 billion of rated debt affected

New York, July 31, 2014 -- Moody's Investors Service assigned a B3 corporate family rating and a B3-PD probability of default rating to BWAY Intermediate Company, Inc. ("BWAY"). Additional instrument ratings are detailed below. The ratings outlook was effectively revised to negative from stable. BWAY intends to issue $1.87 billion in new debt to fund a $200 million dividend to the sponsor, refinance existing debt and to pay fees and expenses related to the transaction.

Moody's took the following rating actions:

BWAY Intermediate Company, Inc.

-Assigned B3 corporate family rating

-Assigned B3-PD probability of default rating

-Assigned $1,100 million senior secured term loan B due January 2020, B2 (LGD 3)

-Assigned $770 million senior unsecured notes due July 2020, Caa2 (LGD 5)

The following ratings are affirmed and will be withdrawn at the close of the transaction:

BOE Intermediate Holding Corporation

- B3 corporate family rating

- B3-PD probability of default rating

- $285 million PIK notes due November 2017, Caa2 (LGD 6)

BWAY Parent Company, Inc.

- $335 million PIK toggle notes due November 2017, Caa2 (LGD 6)

BWAY Holding Company

- $731 million senior secured term loan B due August 2017, B1 (LGD 2)

- $205 million senior notes due June 2018, Caa1 (LGD 4)

The ratings outlook is negative.

The ratings are subject to the receipt and review of the final documentation.

RATINGS RATIONALE

The effective revision of the rating outlook to negative from stable reflects the weak proforma credit metrics and the company's limited room for negative operating variance over the rating horizon. Proforma leverage will rise to over 7.5 times (excluding adjustments for recently completed cost saving initiatives) and cash interest expense will increase. BWAY is reliant on further cost saving initiatives to improve free cash flow to a level necessary for meaningful debt reduction; however, the company has previously completed productivity initiatives so improvements from the ongoing effort may not be as great as expected. Additionally, the company is highly concentrated in a cyclical industry and with one customer. BWAY is also expected to exhaust its NOLs in 2015 and begin paying higher cash taxes in 2016.

The effective affirmation of the B3 corporate family rating reflects the expected benefits from cost saving initiatives, significant tax shields through 2015 and good proforma liquidity. The affirmation also reflects the benefits from the elimination of onetime charges (after 2014) and management's pledge to direct all free cash flow to debt reduction. BWAY has recently completed some cost saving initiatives and has further initiatives in various stages of completion and planning. Operating results will also benefit from the elimination of onetime charges used to fund the cost saving initiatives and the transaction. BWAY is expected to pay minimal cash taxes through 2015 due to tax refunds associated with the transaction and NOLs. Additionally, the company is expected to have approximately $188 million of availability under its $200 million asset based revolver which expires May 2017 (not rated by Moody's) at the close of the transaction.

BWAY's B3 corporate family rating reflects the proforma weak credit metrics, high concentration of sales and cyclical nature of the primary end market. The rating also reflects the company's financial aggressiveness and the sponsor's lack of equity left in the company proforma for the proposed second debt financed dividend. The company obtains approximately 53% of its revenues from housing and construction-related end markets (including paint and other building products) and 12.1% of revenue from one customer. Additionally, the top ten customers account for approximately 33% of revenue. While most of the targets for the company's acquisitiveness are smaller bolt-on, the potential for a larger debt-financed acquisition exists and integration risk remains. The company has long-term contracts with customers that contain cost pass-through provisions for core raw materials, but other costs are excluded and the contracts allow for competitive bids.

The ratings are supported by the company's strong competitive position in the domestic housing and construction-related end markets including dominant share in the metal segment and the limited number of suppliers with scale and breadth of product line. BWAY also benefits from strong liquidity, long-standing customer relationships and some exposure to the relatively more stable consumer related end markets. The company also benefits from limited foreign competition given that the physical nature of most products limits imports. The ratings are also supported by anticipated benefits from completed and in-process cost saving initiatives and the elimination of onetime charges in 2015. BWAY is also expected to benefit from significant tax shields through 2015 and has pledged to direct all free cash flow to debt reduction.

The rating outlook is negative. The negative outlook reflects the weak proforma credit metrics and the company's limited room for negative operating variance.

The rating could be upgraded if BWAY sustainably improves credit metrics and maintains strong liquidity within the context of a stable operating and competitive environment. The company would also need to adopt less aggressive financial policies. Specifically, the ratings could be upgraded, if debt to EBITDA declines below 6.0 times, free cash flow to debt increase to above 4.5%, the EBIT margin improves to above 7.5%, and EBIT to gross interest improves to 1.5 times or better.

The rating could be downgraded if BWAY fails to improve credit statistics or there is a deterioration in liquidity, and/or the operating and competitive environment. Continued aggressive financial policies could also pressure the rating. Specifically, the rating could be downgraded if total debt to EBITDA remains above 7.0 times, free cash flow to debt becomes negative, the EBIT margin declines below 6.0%, and EBIT to gross interest remains below 1.0 time.

BWAY Intermediate Company, Inc. manufactures general line metal and plastic containers for industrial and consumer products. Metal containers accounted for approximately 49% of BWAY's revenue in fiscal 2013 and plastic containers for 51%. With 24 manufacturing facilities across the United States and in Canada and Puerto-Rico, BWAY is a national supplier of steel paint cans, plastic pails, paint bottles and ammunition boxes. The company generates 86% of sales in the U.S. and 14% in Canada. Revenue for the twelve months ended March 31, 2014 was approximately $1.4 billion. BWAY was acquired by an affiliate of Platinum Equity, LLC on November 5, 2012 in a largely debt financed deal that included approximately $267.4 million in equity (after the working capital adjustment) .

The principal methodology used in this rating was the Global Packaging Manufacturers: Metal, Glass, and Plastic Containers 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 DICLOSURES

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 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 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 rating action, and whose ratings may change as a result of this 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: 212-553-0376
SUBSCRIBERS: 212-553-1653

Brian B 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 B3 CFR to BWAY Intermediate; outlook negative
No Related Data.
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