Ball Corp., a U.S. producer of metal and plastic food packaging with about USD4 billion in annual revenue, is planning to become a more active user of interest-rate swaps upon completion of a pending USD887 million acquisition in Germany. The planned initiative will occur after Ball, a member of the Standard & Poor's 500 Index, completes its purchase of Schmalbach-Lubeca, which was announced last month and is expected to close next quarter.
Scott Morrison, v.p. and treasurer in Broomfield, Colo., said it "will be more actively managing our debt, we'll be more active with [interest-rate] swaps," following the acquisition. That's because the combined entity, which would be the second-largest food can maker in Europe and the largest in North America, would have roughly twice as much debt on its books as Ball alone has now. Morrison said Ball now has less than USD1 billion in debt and expects to have USD1.8 billion after the acquisition. Given the higher level of debt, Morrison said it will be prudent to use swaps more actively "to take operating risk out of the business."
The company has used interest-rate swaps in the past, as well as foreign exchange and commodity derivatives, although it has shied away from credit derivatives.
Morrison declined to discuss Ball's current swap book or to quantify how the company will be more active, given the deal has not yet closed. Although he also declined to reveal target ratios for fixed and floating-rate debt, Morrison said the company is currently more heavily weighted to floating-rate paper and as such in any swap would seek to convert some of its outstanding floating-rate debt to fixed-rate. Moody's Investors Service has Ball at Baa3 and S&P rates it BB.