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Announcement:

Moody's keeps Ardagh's B3 notes rating unchanged following EUR200 million senior notes tap

01 Feb 2011

Approximately EUR200 million worth of senior notes to be issued

Frankfurt am Main, February 01, 2011 -- Moody's Investors Service has today affirmed the B3 rating of the EUR275 million senior unsecured bond maturing in 2020 following the announcement of Ardagh to increase the issue by EUR200 million to EUR475million. The bond is issued by Ardagh Packaging Finance plc, a wholly owned indirect subsidiary of Ardagh Packaging Group. Existing ratings of Ardagh, including the B2 Corporate Family Rating with a positive outlook, remain unchanged.

RATING RATIONALE

The proceeds from the proposed issuance are expected to remain within the group initially, though we would assume these to be used for a further expansion of the business, possibly supported by potential bolt-on acquisitions. While we note that net debt levels will remain initially unaffected by the issuance, associated additional interest cost and our assumption of proceeds to be spent over the intermediate term on projects with yet uncertain profitability and cash flow profiles could be an indication of a more aggressive financial policy, which could extend the trajectory to a positive rating movement. We will therefore closely monitor any developments in this direction and assess whether management's approach to expanding the group as opposed to a focus on net debt reductions is shifting, which would be in contrast to our base assumption of a focus on deleveraging the enlarged group following the Impress acquisition in late 2010. Any larger debt-financed acquisition which would delay the expected improvements in credit metrics might therefore have an impact on the rating and/or outlook.

More fundamentally, the B2 corporate family rating continues to incorporate (i) the increased scale with sales in excess of EUR 3 billion and solid market positions of the combined group in the rather low-cyclical food and beverage industry; (ii) an improving geographic spread with the focus of operations still on the European market but with activities also to include Impress existing presence in North America and Australasia; as well as (iii) an improved substrate diversity from a pure glass container focus to a mix of glass and metal.

These positive rating drivers are balanced by (i) high leverage following the acquisition of Impress that is expected to reduce only gradually -- and further slowed down with the proposed bond issue; (ii) the execution risk inherent in a transaction of transformational character; as well as (iii) the exposure to volatile raw material prices which need to be passed on to customers in a timely fashion to preserve solid profitability levels, which we deem to be a major risk factor at this point in time given high price rises for tinplate recently.

The instrument rating of B3 (LGD 5, 77%) for the senior unsecured notes is one notch below the Corporate Family Rating and mirrors their relative ranking in the group's capital structure behind a sizeable portion of secured debt instruments. The proposed additional senior unsecured notes benefit from the same guarantee package as Ardagh's existing senior unsecured notes (EUR310 million, due 2017 and EUR180 million, EUR275million and USD350 million all due 2020). Ardagh's existing senior unsecured notes are supported by subordinated guarantees of subsidiaries representing at least 85% of consolidated assets and EBITDA.

The positive outlook is based on Moody's expectation that the enlarged group should be able to reduce leverage towards levels of 5x debt/EBITDA over the next 12-18 months on the back of ongoing cost savings initiatives, potential synergies and the application of positive free cash flows to net debt reduction. The positive outlook also incorporates Moody's expectation that the enlarged group will continue to tightly manage production volumes and prudently control volatile input costs without compromising current profitability levels as well as the preservation of an adequate liquidity profile including sufficient leeway under financial covenants. The positive outlook does not incorporate leeway for major debt financed acquisitions.

The ratings could be upgraded over the next 12-18 months should Ardagh manage to bring down leverage in terms of Debt/EBITDA towards 5 times (per LTM proforma 09/2010: 5.6x) and keep interest coverage in terms of (EBITDA-Capex)/Interest around 1.5x (per LTM proforma 09/2010: 1.6x) on the back of improvements in operating profitability and continued positive free cash flow generation.

A deterioration in profitability, caused for instance by increasing competition or the inability to manage volatile raw material costs, negative free cash flow or a more aggressive capital structure as indicated by Debt/EBITDA moving towards 6 times and interest coverage in terms of (EBITDA-Capex)/Interest towards 1x could put negative pressure on the ratings.

The principal methodology used in rating Ardagh was "Moody's Global Packaging Manufacturers: Metal, Glass and Plastic Containers Industry rating methodology", published in June 2009 and available on www.moodys.com. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

Ardagh Group, registered in Luxemburg, is a leading supplier of glass and metal containers by volume focusing on the European food and beverage market with some operations also in North America and Australasia. Pro forma for the acquisition of Impress in late 2010, which more than doubled the size of the group, the company generated sales of about EUR3 billion in the last twelve months ending September 2010.

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 keeps Ardagh's B3 notes rating unchanged following EUR200 million senior notes tap
No Related Data.
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