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Rating Action:

Moody's rates Owens-Illinois's credit facilities Baa2, affirms Ba2 CFR, outlook stable

19 Apr 2011

Approximately $4.9 billion of rated debt affected

New York, April 19, 2011 -- Moody's Investors Service assigned a Baa2 rating to the new $2.0 billion senior secured credit facilities of Owens-Illinois Inc. (OI) and affirmed the Ba2 corporate family rating and SGL-2 speculative grade liquidity rating. The ratings outlook remains stable. The new facility includes a $900 million multi-currency revolver at Owens-Brockway Glass Container Inc. ("OBGC"), an indirect wholly owned subsidiary of OI. The facility also includes up to $1.1 billion of term loans at OBGC and OI's European, Australian and Canadian subsidiaries, including a $400 million delayed draw tranche. The proceeds of the new facility will be used to refinance the existing revolver and term loans.

Moody's took the following rating actions for Owens Illinois, Inc.:

- Affirmed Corporate Family Rating, Ba2

- Affirmed Probability of Default Rating, Ba2

- Affirmed $250 million senior unsecured notes due 2018, B1 (LGD 6, 94%)

- Affirmed Speculative Grade Liquidity Rating, SGL-2

Moody's took the following rating actions for Owens-Brockway Glass Container Inc.:

- Assigned $900 million senior secured multi-currency revolver due 2016, Baa2 (LGD 1, 8%)

- Assigned $600 million senior secured term loan due 2016, Baa2 (LGD 1, 8%)

- Affirmed $900 million senior secured first lien revolving credit facility due 2012, Baa2 (LGD 1, 8%) (To be withdrawn after the transaction closes)

- Affirmed $200 million ($190 million outstanding) senior secured first lien term loan B due 2013, Baa2 (LGD 1, 8%) (To be withdrawn after the transaction closes)

- Affirmed EUR 225 million senior unsecured notes due 2014, Ba3 ( LGD 5, 81% from LGD 5, 78%)

- Affirmed $400 million senior unsecured notes due 2014, Ba3 ( LGD 5, 81% from LGD 5, 78%)

- Affirmed $600 million senior unsecured notes due 2016, Ba3 ( LGD 5, 81% from LGD 5, 78%)

- Affirmed $607 million exchangeable senior unsecured notes due 2015, Ba3 (LGD 5, 81% from LGD 5, 78%)

Moody's took the following rating actions for OI European Group BV (Netherlands):

- Assigned EUR 190 million senior secured term loan due 2016, Baa2 (LGD 1, 8%)

- Affirmed EUR 200 million (EUR 190 million outstanding) senior secured first lien term loan D due 2013, Baa2 (LGD 1, 8%) (To be withdrawn after the transaction closes)

- Affirmed EUR 300 million senior unsecured notes due 2017, Ba2 (LGD 3, 45% from LGD 3, 40%)

- Affirmed EUR 500 million senior unsecured notes due 2020, Ba2 (LGD 3, 45% from LGD 3, 40%)

Moody's took the following rating actions for ACI Operations Pty. Ltd. and O-I Canada Corp:

- Assigned AUD 180 million senior secured term loan due 2016, Baa2 (LGD 1, 8%)

- Assigned CAD 120 million senior secured term loan due 2016, Baa2 (LGD 1, 8%)

- Affirmed AUD 225 million (AUD 90 million outstanding) senior secured first lien term loan A due 2013, Baa2 (LGD 1, 8%) (To be withdrawn after the transaction closes)

- Affirmed CAD 138 million (CAD 111 million outstanding) senior secured first lien term loan C due 2013, Baa2 (LGD 1, 8%) (To be withdrawn after the transaction closes)

The ratings outlook remains stable.

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

RATINGS RATIONALE

The Ba2 Corporate Family Rating reflects OI's leading position in the industry, wide geographic footprint and focus on profitability rather than volume. The rating also reflects anticipated improvements in credit metrics from recent acquisitions, cost-cutting/productivity and cost pass-throughs. The company has led the industry in establishing and maintaining a strong pricing discipline and improving operating efficiencies which has had a measurable impact on its operating performance and the competitive equilibrium in the industry. OI is one of only a few major players that have the capacity and scale to serve larger customers and has strong market shares globally, including faster growing emerging markets. The company's expansion into faster growing emerging markets is also anticipated to help support credit metrics. Liquidity is strong as the company has good free cash flow, significant availability under its credit facility and substantial cushion under its covenants.

The ratings are constrained by the concentration of sales, potential acquisition risk and the asbestos liabilities. The ratings are also constrained by the mature state of the industry, cyclical nature of glass packaging and lack of growth in developed markets. Glass is considered a package for premium products and subject to substitution and trading down in an economic decline. OI is heavily concentrated with a few customers in the beer industry and has benefited from the growth in premium beers. Additionally, OI generates approximately 76% of sales internationally while the majority of the interest expense is denominated in U.S. dollars. The company has disclosed its intention to continue to pursue acquisitions in emerging markets which entails some level of risk despite the potential benefits.

What Could Change the Rating - Down

The ratings could be downgraded if there is deterioration in the credit metrics, further decline in the operating and competitive environment, and/or further increase in the asbestos liability. While large acquisitions are not anticipated, the rating and/or outlook could also be downgraded for extraordinarily large, debt-financed acquisitions or significant integration difficulties with any acquired entities. Specifically, the ratings could be downgraded if free cash flow to debt remains below 5.0%, debt to EBITDA remains above 4.0 times, and/or the EBIT margin declines below 13%.

What Could Change the Rating - Up

The ratings could be upgraded if there is evidence of a sustained improvement in credit metrics within the context of a stable operating profile and competitive position. Specifically, the ratings could be upgraded if free cash flow to debt increases to greater than 9.0% and the EBIT margin increases to above 14.0% and debt to EBITDA declines below 3.75 times.

The principal methodology used in rating Owens-Illinois Inc. was the Global Packing Manufacturers: Metal, Glass, and Plastic Containers Industry Methodology, published June 2009 and Speculative Grade Liquidity Ratings Industry Methodology, published September 2002. Other methodologies used include Loss Given Default for Speculative Grade Issuers in the US, Canada, and EMEA, published June 2009.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not 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 maintaining a credit rating.

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 and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

New York
Edward Schmidt
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Glenn B. Eckert
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's rates Owens-Illinois's credit facilities Baa2, affirms Ba2 CFR, outlook stable
No Related Data.
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