S&P Downgrades Owens-Illinois (OI) to 'BB', Outlook Stable

Standard & Poor's Ratings Services said that it has lowered its corporate credit rating on Owens-Illinois (NYSE: OI) to 'BB' from 'BB+'. The outlook is stable.

Additionally, we lowered all of our issue-level ratings on the company's debt by one notch.

At the same time, we removed all of our ratings on Owens-Illinois Inc. from CreditWatch, where we had placed them with negative implications on May 13, 2015.

"The downgrade reflects the significant amount of debt that Owens-Illinois took on for the Vitro acquisition and the revision of our assessment of the company's financial risk profile to "aggressive" from "significant"," said Standard & Poor's credit analyst Liley Mehta.

We view Owens-Illinois Inc.'s business risk profile as "satisfactory" based upon its leading market position in the glass packaging industry, with leading market shares in each of its four regions (North America, Europe, South America, and Asia-Pacific), and its extensive international operations, which include good positions in emerging markets that have favorable long-term growth prospects.

Our stable outlook on Owens-Illinois reflects our expectation that the company's credit measures will improve over the next 24 months as management uses its substantial free operating cash flow to deleverage.

We could lower our ratings on Owens-Illinois if more difficult-than-expected integration challenges or a lower-than-expected operating performance causes its FFO-to-total-debt ratio to fall below 12% and its debt-to-EBITDA metric to increase above 5x. We could also lower our ratings on the company if Owens-Illinois entered into an additional large debt-financed acquisition that caused the company's credit measures to deteriorate significantly.

Although unlikely in the next few years, we could raise our ratings on Owens-Illinois if it reduces its leverage beyond our expectations, such that its FFO-to-total adjusted debt ratio exceeds 20% on a sustainable basis.

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