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Rating Action:

Moody's confirms Berry's B1 CFR, concludes review, rates acquisition financing; outlook stable

Global Credit Research - 09 Jan 2017

Approximately $6.3 billion of rated debt affected

New York, January 09, 2017 -- Moody's Investors Service ("Moody's") confirmed the B1 Corporate Family Rating and B1-PD Probability of Default Rating of Berry Plastics Group, Inc. ("Berry"). Moody's also confirmed the Ba3 existing First Lien Senior Secured Term Loans and B3 existing Second Priority Senior Secured Notes of Berry Plastics Corporation, a subsidiary of Berry Plastics Group, Inc. Moody's assigned a Ba3 rating to the proposed $500 million First Lien Senior Secured Term Loan due January 2024. The ratings outlook is stable.

The proceeds from the loan will be used to acquire AEP Industries ("AEP"), partially repay existing Term Loan debt, and pay fees and expenses associated with the transaction. This concludes the review for possible downgrade initiated on August 25, 2016 when Berry announced that it had offered to acquire AEP in a cash and stock transaction.

Moody's took the following actions:

Berry Plastics Group, Inc.

- Confirmed Corporate Family Rating, B1

- Confirmed Probability of Default Rating, B1-PD

- Affirmed Speculative Grade Liquidity, SGL-2

Berry Plastics Corporation

- Confirmed First Lien Senior Secured Term Loans, Ba3 (LGD3)

- Confirmed Second Priority Senior Secured Notes, B3 (LGD5)

- Assigned $500 million First Lien Senior Secured Term Loan due January 2024, Ba3 (LGD3)

The ratings outlook is stable.

The ratings are subject the transaction closing as proposed and the receipt and review of the final documentation.

RATINGS RATIONALE

The confirmation of the rating reflects continued good pro forma free cash flow generation, expected benefits of completed and ongoing cost saving initiatives and Berry's commitment to dedicate all free cash flow to debt reduction. The confirmation also reflects benefits from the AEP acquisition including anticipated synergies and an increase in the exposure to the engineered materials end markets. Pro forma leverage is approximately neutral at 5.0x (Moody's adj Total debt / Adj EBITDA).

Berry's B1 Corporate Family Rating reflects the company's exposure to more cyclical end markets, certain weaknesses in contract structures with customers and a high percentage of commodity products. The rating also reflects the stretched credit metrics pro forma for the AEP acquisition and the fragmented and competitive industry structure.

Strengths in Berry's competitive profile include its scale, concentration of sales in relatively more stable end markets and good liquidity. The company's strengths also include a strong competitive position in rigid plastic containers and continued focus on producing higher margin products and pruning lower margin business.

The ratings outlook is stable. The stable outlook is predicated on an expectation of an improvement in operating results from various cost saving initiatives and acquisitions as well as the company's pledge to direct all free cash flow to debt reduction.

The ratings could be upgraded if the company sustainably improves credit metrics within the context of a stable operating and competitive environment while maintaining good liquidity. An upgrade would also be dependent upon less aggressive financial and acquisition policies as well as success in integrating the recent acquisition. Specifically, the ratings could be upgraded if funds from operations to debt increases above 13%, debt to EBITDA declines below 4.7 times, and/or EBITDA to interest expense remains above 4.25 times.

The rating could be downgraded if there is deterioration in the credit metrics, liquidity or the operating and competitive environment. Additional debt financed acquisitions, excessive acquisitions (regardless of financing) and/or a move to a more aggressive financial profile could also prompt a downgrade. Specifically, the ratings could be downgraded if funds from operations to debt decreases below 10%, debt to EBITDA increases above 5.5 times, and/or EBITDA to interest expense decreases below 3.5 times.

The principal methodology used in these ratings was "Packaging Manufacturers: Metal, Glass, and Plastic Containers" published in September 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Based in Evansville, Indiana, Berry Plastics Group is a manufacturer of plastic packaging products, serving customers in the food and beverage, healthcare, household chemicals, personal care, home improvement, and other industries. The company reports in three segments including Consumer Packaging, Health, Hygiene & Specialties, and Engineered Materials (pro forma approximately 37%, 30% and 34% of sales respectively). Berry has manufacturing and distribution centers in the United States, Canada, Mexico, Belgium, Australia, Germany, Brazil, Malaysia, and India. The North American operation generates approximately 84% of the company's pro forma net sales. Polypropylene and polyethylene account for the majority of plastic resin purchases. Net sales for the twelve months ended October 1, 2016 totaled approximately $6.5 billion.

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: 212-553-0376
SUBSCRIBERS: 212-553-1653

Brian 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

No Related Data.
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