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Rating Action:

Moody's assigns Baa2 to Crown Americas and Crown European's senior secured credit facilities; Crown's Ba2 CFR and stable outlook unchanged

18 Nov 2019

Approximately 8.8 billion of debt affected

New York, November 18, 2019 -- Moody's Investors Service ("Moody's") has assigned a Baa2 rating to the new $3.25 billion senior secured credit facilities issued by Crown Americas LLC and Crown European Holdings S.A., subsidiaries of Crown Holdings, Inc. The $3.25 billion senior secured credit facilities consists of a $1.1 billion Term Loan A issued by Crown Americas LLC and a $500 million Term Loan A issued by Crown European Holdings S.A. The Ba2 Corporate Family Rating, Ba2-PD Probability of Default rating, all other instrument ratings, the SGL-2 rating and the stable outlook for Crown Holdings, Inc. remain unchanged. The proceeds will be used to refinance their existing senior secured credit facilities and repay the outstanding Euro and US Term Loans B. The transaction is seen as credit neutral since the transaction will not increase debt and will increase the company's maturity profile.

Assignments:

..Issuer: Crown Americas LLC

....Senior Secured Revolving Credit Facility, Assigned Baa2 (LGD2)

....Senior Secured Term Loan A, Assigned Baa2 (LGD2)

..Issuer: Crown European Holdings S.A.

....Senior Secured Multi Currency Revolving Credit Facility, Assigned Baa2 (LGD2)

....Senior Secured Term Loan A, Assigned Baa2 (LGD2)

..Issuer: Crown Metal Packaging Canada LP

....Senior Secured Revolving Credit Facility, Assigned Baa2 (LGD2)

RATINGS RATIONALE

Crown's credit profile (Ba2 Corporate Family Rating) reflects the oligopolistic industry structure, high exposure to relatively stable end markets and high percentage of business under contract with strong raw material cost pass-through provisions in the company's can segment. The credit profile also reflects the high quality/margin product strategy, base of installed equipment and high percentage of consumables in the transit packaging segment. Crown also benefits from higher margin growth projects in emerging markets and good liquidity. The company's broad geographic exposure, including a high percentage of sales from faster growing emerging markets, is both a benefit and a source of some potential volatility.

Crown's credit profile is constrained by the company's concentration of sales, exposure to cyclical end markets and the ongoing asbestos liability. The credit profile is also constrained by the high foreign currency exposure and risks inherent in Crown's strategy to grow in emerging markets. Additionally, the transit segment operates in a fragmented and competitive industry and has limited raw material cost pass-through provisions. Crown has high exposure to segments which can be affected by weather, crop harvests and economic cycles (steel, chemicals, lumber). Moreover, the company has a high exposure to the declining carbonated soft drinks segment. Metal cans are also subject to substitution with other substrates in certain markets depending on relative pricing and new technologies.

The ratings outlook is stable. The stable outlook reflects an expectation that Crown will dedicate substantially all free cash flow to debt reduction until credit metrics are restored to pre-acquisition levels.

An upgrade is unlikely as leverage remains elevated following the Signode acquisition. However, the ratings could be upgraded if Crown achieves a sustainable improvement in credit metrics within the context of a stable operating and competitive environment and maintains good liquidity including sufficient cushion under existing covenants. Specifically, the ratings could be upgraded if adjusted debt-to-EBITDA declines below 4.0 times, EBITDA interest coverage improves to over 5.5 times, and funds from operations to total debt improves to over 17%.

The ratings could be downgraded if Crown fails to improve credit metrics over the intermediate term, there is a deterioration in the cushion under existing financial covenants, and/or a deterioration in the competitive or operating environment. Additionally, a significant acquisition or change in the asbestos liability could also trigger a downgrade. Specifically, the rating could be downgraded if adjusted debt-to-EBITDA remains above 4.6 times, EBITDA interest coverage remains below 4.5 times and/or funds from operations to debt remains below 14%.

Crown's SGL-2 Speculative Grade Liquidity Rating reflects the company's good free cash flow and ample availability under its credit facilities. Cash is held in local bank accounts at high credit-quality institutions. Crown's senior secured revolving credit facilities due November 2024 are available in an aggregate principal amount of up to $1.65 billion, of which up to $600 million is available to Crown Americas LLC in U.S. dollars, up to $1000 million is available, subject to certain sublimits, to Crown European Holdings S.A. and the subsidiary borrowers in Euro and Pound Sterling, and up to $50 million is available to Crown Metal Packaging Canada LP, a Canadian indirect subsidiary of Crown in Canadian dollars. Financial covenants in the credit facility include a total leverage covenant with step downs. Crown also has receivables securitization facilities and the latest matures in July 2020. The term loan A annual amortization over the life of the loan is approximately 2.5%/2.5%/5%/5%/5%. The nearest significant debt maturity is the large term loan payments and the Crown European Holdings S.A. senior unsecured notes due in 2023. The secured debt leaves little in the way of assets the company could liquidate as an alternative source of liquidity.

Crown manufactures both plastic and metal packaging and is subject to a broad range of federal, state, provincial and local environmental, health and safety laws, including those governing discharges to air, soil and water, the handling and disposal of hazardous substances and the investigation and remediation of contamination resulting from the release of hazardous substances. The company has a broad international footprint and manufactures products in developed markets which nave more regulations and emerging markets which have less. While packaging manufacturers mostly produce products to customer specifications and primarily operate a tolling model (passing through most costs to customers and just getting paid to convert raw materials into containers), increasing regulation will require continued attention and vigilance. The company will need to continue to focus on building quality products and adapting to an evolving regulatory environment.

Crown, and the packaging sector in general, has overall moderate social risk. The primary risks driving this are employee health and safety risks and demographic and societal trends offset by many low risks in customer relations and human capital. Crown's human capital risks are moderate despite the level of unionization given the generally good relations with the unions that are active. The company's health and safety risks are moderate reflecting the usual risks found in a manufacturing environment offset by the lack of exposure to toxic substances or dangerous processes found in many other manufacturing plants. This also reflects OSHA regulations to which all manufacturers are subject. Responsible production risk is moderate given the current focus on sustainability and recyclability of metal. Demographic and societal trends risk is low given the sustainability of metal packaging . Given the predominance of food and beverage packaging, the impact of demographic trends is considered moderate.

Governance risks are less than the most other companies in the sector due to the lack of PE ownership (public 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.

Crown Holdings, Inc. ("Crown"), headquartered in Yardley, Pennsylvania, is a global manufacturer of steel and aluminum containers for food, beverage, and consumer products. Signode Industrial Group is a global manufacturer of industrial packaging products and solutions. For the 12 months ended September 30, 2019, the publicly-traded company generated approximately $11.6 billion in revenue.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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, CFA
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

Glenn B. Eckert
Associate Managing Director
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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