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I AGREE
19 Apr 2011
Frankfurt am Main, April 19, 2011 -- Moody's Investors Service has today assigned a first-time
provisional (P)Baa3 long-term issuer rating to Verallia S.A.
following the group's announcement that it has filed for an initial
public offering (IPO). The outlook of the rating is stable.
This is the first time that Moody's has rated Verallia, the
glass container packaging division of Saint-Gobain (rated Baa2,
stable).
Moody's has assigned a provisional issuer rating to Verallia,
to reflect the group's proposed capital structure after the pending
IPO, which the group initiated on 18 April 2011. Moody's
issues provisional ratings in advance of the final closing of a transaction
and these reflect Moody's credit opinion regarding the transaction
only.
Key characteristics of Verallia's capital structure at the time
of the IPO, and factored into the (P)Baa3 rating, will include:
(i) full drawings under two term loans worth EUR800 million each,
both of which have a three-year maturity but with Term Loan B also
incorporating two one-year extension options; (ii) access
to a EUR600 million five-year revolving credit facility,
which Moody's assumes will be partly drawn at the IPO; and
(iii) total reported net debt pro forma the IPO of approximately EUR1.8
billion. Moody's understands that these debt instruments
will be initially made available by Verallia's parent company,
Saint-Gobain, but that these instruments will be backed by
external bank commitments mirroring the terms and conditions surrounding
the internal financing package. Upon a conclusive review of the
capital structure to be implemented, including the terms and conditions
of the various debt instruments to be put in place, Moody's
will endeavour to assign a definitive issuer rating. A definitive
rating may differ from a provisional rating.
RATINGS RATIONALE
"The (P)Baa3 issuer rating assigned to Verallia reflects the group's
strong business profile as one of the world's largest glass packaging
producers, with a focus on the defensive food and beverage industry,"
says Anke Rindermann, Moody's lead analyst for Verallia.
The rating also incorporates the strong historical profitability levels
of the group, a result of Verallia's focus on the value-added
premium segment in the glass packaging industry and the largely consolidated
structure of the mature markets of Western Europe and North America.
This enabled Verallia to generate Moody's adjusted EBITDA margins of around
19-20% over the past three years, supporting Moody's
view that, in challenging economic conditions, the group has
a high degree of resiliency in terms of its profitability and ability
to generate cash flow.
However, the rating is constrained by Verallia's exposure
to highly volatile commodity costs, as a result of which it bears
the risk of margin volatility. Also, Verallia's focus
on the premium part of the food and beverage packaging segment could expose
the group to some cyclicality, as these products are more discretionary
in nature. In addition, Moody's notes that Verallia
makes the vast majority of its sales in the mature markets of Western
Europe and North America, which are characterised by stable to slightly
shrinking demand levels. This requires the group to carefully manage
supply to avoid pricing pressure. In terms of credit metrics,
Moody's estimates Verallia's initial leverage following its
IPO will position Verallia weakly in the assigned rating category.
This is based on the rating agency's expectation that the group
will exhibit a debt/EBITDA ratio above 3.0x and a ratio of retained
cash flow (RCF)/net debt in the high teens in percentage terms.
The stable outlook reflects Moody's expectation that the group will
be able to gradually improve its profitability levels on the back of moderate
top-line growth and benefits from internal restructuring measures,
resulting in a debt/EBITDA ratio that is sustainably below 3.0x.
The stable outlook is also based on Moody's expectation that Verallia
will preserve a sufficient liquidity cushion, supported by positive
free cash flow (FCF) generation and including sufficient leeway under
financial covenants.
Positive pressure could be exerted on Verallia's rating if the group
were able to improve its financial performance to the extent that its:
(i) EBITDA margin were to increase to levels above 20%; (ii)
FCF/debt ratio were to increase above 10%; (iii) debt/EBITDA
ratio were to decline to below 2.5x on a sustainable basis.
Conversely, Moody's would consider downgrading the rating
if: (i) Verallia's leverage, in terms of debt/EBITDA,
were to remain sustainably above 3.0x times; (ii) its RCF/debt
ratio not remaining close to 20%; or (iii) its FCF generation
were to decrease, falling towards break-even levels.
Assignments:
..Issuer: Verallia S.A.
.... Issuer Rating, Assigned (P)Baa3
The principal methodology used in rating Verallia S.A. was
the Global Packing Manufacturers: Metal, Glass, and
Plastic Containers Industry Methodology, published June 2009.
Other methodologies used include Loss Given Default for Speculative Grade
Issuers in the US, Canada, and EMEA, published June
2009.
Headquartered in Paris, France, Verallia is a global leading
producer of glass containers for the food and beverage industry,
with a total staff of around 15,000. The group generated
sales of EUR3.6 billion in 2010. While Verallia is currently
100% owned by Saint-Gobain (rated Baa2, stable outlook),
the group filed for an IPO on 18 April 2011. However, Moody's
understands that Saint-Gobain intends to retain a majority shareholding
in Verallia.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
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Please see the ratings disclosure page on our website www.moodys.com
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Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Frankfurt am Main
Anke Rindermann
Analyst
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Frankfurt am Main
Matthias Hellstern
Senior Vice President
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's assigns (P)Baa3 to Verallia; stable outlook (France)
No Related Data.
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