OREANDA-NEWS. Fitch Ratings has affirmed the 'BB+' Issuer Default Rating (IDR) and all of the outstanding long-term debt of Ball Corporation (BLL). Fitch has withdrawn the ratings on the existing senior secured revolving credit facility (RCF). In addition, Fitch assigns a 'BBB-/RR1' rating to Ball's \$3 billion secured revolving credit facility due February 2018. The Rating Outlook is Stable. A full rating list is shown at the end of the press release.

KEY RATING DRIVERS

Fitch believes the proposed \$8.4 billion acquisition of Rexam PLC (Rexam) will allow Ball to materially improve its business risk profile, profitability and financial flexibility owing to the combined capabilities, production efficiencies and scale of these No. 1 and 2 global beverage can manufacturers. Thus, the combination should improve Ball's competitive position to better optimize beverage can price to customers relative to other alternative packaging substrates. The transaction also provides access to additional geographies and new customers that will increase Ball's exposure to growing beverage segments along with the ability to better leverage specialty package technology and efficiencies.

The combined company would have approximately \$15 billion in revenue and \$2.4 billion in adjusted EBITDA excluding considerations for asset divestitures. Fitch believes Ball should have opportunities to exceed the net synergy target of \$300 million on an annual basis. Non-recurring integration costs are estimated at approximately \$300 million over the first three years.

The transaction, which is expected to close in the first half of 2016, is subject to approval from each company's shareholders, regulatory approvals and customary closing conditions. Given the substantial market concentration of the two companies across the U.S., Europe and South America, the regulatory process will be much longer than normal and could result in considerable divestitures if approved. A breakup fee that varies depending on certain conditions including antitrust divestitures is included in the co-operation agreement.

Currently, Ball has very good liquidity provided by the company's free cash flow (FCF), availability under its credit agreement, and balance sheet cash. FCF (net cash provided by operating activities less capital expenditures and dividends) for 2014 was \$549 million. At the end of 2014, Ball had cash of \$191 million and \$986 million of availability on its \$1 billion multicurrency revolver that matures in 2018 with significant covenant flexibility and basket capacity.

Ball has taken steps to bolster the necessary liquidity required for the proposed transaction by closing on a new \$3 billion multicurrency RCF maturing in February 2018 and 3.3 billion sterling multicurrency bridge term loan facilities. The lengthy review period will also allow Ball and Rexam the opportunity to build cash in anticipation of the transaction closing to strengthen the balance sheets. Ball expects to generate at least \$500 million in FCF (Fitch defined) during 2015.

Expected financing for the transaction will include a mix of bank and unsecured debt, a significant equity component and excess cash. Fitch expects Ball will finance a substantial portion of the transaction with foreign currencies in various geographies, effectively mitigating the deleveraging risk from trapped foreign cash due to the significant international cash generation.

The affirmation considers the material increase in Ball's leverage. Pro forma for the transaction, Fitch expects leverage will be in the low- to mid-4x range at the end of 2016 depending on the extent of required divestitures. Ball's leverage was 2.6x at the end of 2014, which is historically low for the company. Ball and Rexam's combined FCF generation should allow the company to rapidly delever, primarily though debt reduction, although Fitch expects some benefit through execution of its synergy targets. During 2017, leverage should further decline to less than 3.5x, back within current negative rating sensitivities. Ball has a strong track record for deleveraging following large transactions, which is an important rating consideration.

Maturities are relatively modest during the next several years with \$55 million due in 2015 and \$165 million during the following two years. The next maturity of Ball's senior notes is \$500 million of 6.75% notes due in 2020 that becomes callable in March 2015. Ball has announced notices of redemption for all of its 6.75% senior notes due 2020 and 5.75% senior notes due 2021, which is subject to a make-whole provision.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for the issuer include:

--Regulatory approval is gained and antitrust related divestures are in the \$1 billion range which provides additional deleveraging benefits through debt reduction;
--A minimum of a 12-month regulatory review period that will allow Ball to meaningfully build excess cash;
--Ball will not repurchase any shares until net leverage decreases below 3x;
--Margin expansion of at least 150 basis points through 2018 driven by the increased scale and synergy opportunities;
--FCF approaching \$1 billion in 2017;
--2016 leverage would increase to the mid-4x range pro forma for the transaction, decreasing to less than 3.5x during 2017.

RATING SENSITIVITIES

Negative: Future developments that may, individually or collectively, lead to negative rating include:

--Sustained leverage greater than 3.5x;
--Significant revenue decline/pressure on EBITDA causing a material drop in profitability and lower cash generation;
--Change in financial policy or initiation of material share repurchases before net leverage is reduced below 3x following the close of the proposed acquisition.

Positive: Future developments that may, individually or collectively, lead to positive rating include:

Fitch does not view a ratings upgrade as likely at this time given the expected increase in leverage due to the proposed transaction.

Fitch has affirmed the following ratings:

--IDR at 'BB+';
--Senior unsecured debt at 'BB+/RR4';
--Senior secured term loan C facility at 'BBB-/RR1'.

Fitch has withdrawn the following rating:
--Senior secured RCF at 'BBB-/RR1'.

Fitch has assigned the following new rating:
--\$3 billion senior secured RCF rated 'BBB-/RR1'.