Crown Holdings to use cash flow to de-lever after Signode acquisition

By Devika Patel

Knoxville, Tenn., April 19 – Crown Holdings Inc. plans to de-lever over the next three years with an expected free cash flow of over $2 billion.

The company has taken on leverage to acquire Signode Industrial Group Holdings (Bermuda) Ltd. and to refinance the Signode debt but plans to reduce this significantly, decreasing floating-rate debt and thus cutting exposure to rising interest rates.

“As to the debt incurred to acquire Signode, we used all debt and no equity, given our desire to have all the benefits of the transaction accrued to our shareholders,” president and chief executive officer Timothy J. Donahue said on the company’s first quarter ended March 31 earnings conference call on Thursday.

“With the availability of attractively priced fixed- and floating-rate debt, we believe this was in the best interest of our shareholders.

“With expected free cash generation of more than $2 billion over the next three years, total leverage will return to mid-three levels with almost all the paydown coming from our floating-rate debt, thereby reducing any impact from rising rates,” Donahue said.

The company expects its net leverage to be about 4.7x by year-end and the ratio will decline by about a half-turn each year.

“Net leverage at the end of 2018 is expected to be approximately 4.7x and we expect the ratio to decline by about half a turn each year going forward as we use cash flow to de-lever,” senior vice president and chief financial officer Thomas A. Kelly

Cash and cash equivalents were $2,201,000,000 as of March 31, 2018, compared to $338 million as of March 31, 2017.

Long-term debt, excluding current maturities, was $7,778,000,000 as of March 31, 2018, compared to $5,206,000,000 as of March 31, 2017.

On Jan. 18, Crown Holdings priced a three-part issue of senior notes.

The deal included:

• An upsized $875 million of eight-year notes (Ba3/B+) issued by Crown Americas LLC and Crown Americas Capital Corp. that priced at par to yield 4¾%. The tranche was increased from $750 million. The yield printed at the tight end of yield talk in the 4 7/8% area;

• €335 million of five-year bullet notes (Ba2/BB) issued by Crown European Holdings SA that priced at par to yield 2¼%. The yield printed at the tight end of yield talk in the 2 3/8% area; and

• A downsized €500 million of eight-year bullet notes (Ba2/BB) issued by Crown European Holdings that priced at par to yield 2 7/8%. The tranche was cut from €600 million. The yield printed at the tight end of yield talk in the 3% area.

Citigroup Global Markets Inc. was the left bookrunner. Deutsche Bank Securities Inc., BofA Merrill Lynch, BNP Paribas Securities Corp., Santander, Wells Fargo Securities LLC, Mizuho Securities, TD Securities and Scotia Capital were the joint bookrunners.

The Philadelphia-based manufacturer of packaging products for consumer marketing companies earmarked the proceeds, together with other available funds, to pay the cash consideration for its acquisition of Signode Industrial Group Holdings (Bermuda) Ltd. and to refinance the Signode debt.

© 2015 Prospect News.
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