Fitch to rate Owens-Illinois note B

Fitch Ratings said it expects to assign a B/RR3 rating to OI European Group BV's new €300 million senior unsecured notes upon the successful completion of the offer. The ratings of Owens-Illinois, Inc. and Owens Brockway Glass Container Inc., including the B- issuer default ratings, remain unchanged.

The outlook is stable.

The new notes will be guaranteed on a senior basis by the same guarantors as for the senior secured credit facility and will rank equal in right of payment to the senior unsecured debt held at Owens Brockway, which is an indirect subsidiary of Owens-Illinois. Proceeds from the offering will be used to repay borrowings under the secured credit agreement, which will then likely be used to refinance $300 million of senior unsecured debt maturing in May.

The ratings are supported by the company's leading market positions, global footprint, technology leadership and long-term customer relationships with large, stable customers, the agency said. New asbestos claims and asbestos cash payments continue to decline steadily, and Owens-Illinois has improved its working capital management.

Fitch said increasing energy costs and other cost inflation are primary concerns. Although Owens-Illinois has made progress on improving price, reducing costs and boosting productivity, raw materials and energy inflation have more than offset these gains in recent quarters. High leverage continues to be a key rating factor, and free cash flow has been minimal or negative in the past three years. The gross-debt-EBITDA ratio was 4.5x for 2006.

Owens-Illinois is reviewing strategic alternatives for its plastics segment, which generated operating profits of $115 million in 2006. Fitch said that depending on the use of the proceeds, the potential sale of the plastics segment could have a meaningful impact on the company's credit metrics, and the company's ratings or outlook could be positively affected if a transaction is executed.

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