Ball Corp. (BLL) Ratings Affirmed by S&P; Outlook is Negative

S&P Global Ratings said that it has affirmed all of its ratings on Ball Corp. (NYSE: BLL), including our 'BB+' corporate credit rating. The outlook is negative.

At the same time, we lowered our corporate credit rating on Rexam PLC and our issue-level ratings on the company's senior unsecured debt to 'BB+' from 'BBB-' to reflect the entity's status as a core operating subsidiary of Ball.

We lowered our short-term rating on Rexam to 'B' from 'A-3' because we now rate the company as speculative grade. We also withdrew our senior unsecured ratings on Rexam's credit facility, as we expect that facility to be repaid. We expect that Rexam's unrated private placement notes will be paid off within the next month, so we have not factored that debt into our recovery analysis.

Additionally, we lowered our issue-level rating on Rexam's 6.75% hybrid subordinated notes due 2067 by two notches to 'B+' from 'BB' because of our hybrid criteria. The criteria indicates that we should initially lower the rating on this debt by two notches from our corporate credit rating on the issuer for subordination before applying an additional one-notch reduction for the deferability of interest payments. The notes' terms include a change of control provision that increases the applicable interest rate by 5%, so we anticipate that the company will elect to call the notes soon.

"The affirmation reflects our belief that Ball will smoothly integrate the $8.5 billion Rexam acquisition and achieve operating and cost synergies that will allow it to maintain a funds from operations (FFO)-to-debt ratio in the 12%-20% range," said S&P Global credit analyst James Siahaan.

The negative outlook on Ball Corp. reflects the potential that we could lower our ratings on the company if significant integration issues pertaining to the Rexam acquisition, other operational challenges, or financial policy decisions cause the company's credit measures to unexpectedly weaken.

We could lower our ratings on Ball Corp. if management's financial policies, integration-related challenges, or weakness in the company's operating performance causes its FFO-to-debt ratio to deteriorate to less than 12% during the 12-18 months following the close of the proposed transaction with limited prospects for improvement.

It is unlikely that we will upgrade Ball Corp. over the next year in light of our expectation that the company's credit measures will be weak following the Rexam acquisition, along with the potential that it may face integration-related challenges. We could revise our outlook on Ball to stable if a smooth integration, solid production volumes, and continued progress toward realizing acquisition synergies allows the company to consistently improve its credit measures. An upgrade would be predicated on our view that management's financial policies will be conservative enough to warrant higher ratings, as demonstrated by consistently maintaining a FFO-to-adjusted debt ratio of more than 20% and an adjusted debt-to-EBITDA ratio of less than 4x.

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