A $1.85 billion multi-currency bank deal backing Ball Corp.'s $900 million acquisition of Schmalbach-Lubeca of Germany is expected to hit the market next month, and investors are licking their chops. Buysiders say the company is a solid play, and one banker whose bank is not leading the deal said the credit's institutional piece would be a home run. Deutsche Bank, Bank of America, BANK ONE and Lehman Brothers have landed lead roles on the deal. Raymond Seabrook, cfo of Ball, said in a conference call that the acquisition would be financed completely with debt.
The facility will consist of a $500 million revolver with an additional $35 million Canadian tranche, a $250 million "A" term loan, a $200 million Euro-denominated "B" term loan, a $600 million U.S. institutional tranche and a $300 million "C" loan. One banker noted that the "C" tranche is intended as a bridge loan in case a proposed bond offering does not go ahead. Officials at the banks either declined to comment or did not return calls by press time.
Since its last major acquisition of Reynolds Metals in 1998, Ball has aggressively paid down debt, maintaining solid credit ratios. "Total debt-to-EBITDA will be around three times starting, however, we plan to scale back on the share-repurchase program initially and use the combined business cash flow to aggressively de-lever," Seabrook said. Over the past two to three years, Ball has been buying back stock, but the plan is to reduce the debt by $600 million within three years, he explained. The expected interest cost on the debt overall is 6%, based on a model that assumes LIBOR increasing by up to 1% next year, he noted. A banker said the "B" is priced at LIBOR plus 21/ 4%.
Moody's Investors Service has assigned a Ba2 rating to the bank debt, while Standard & Poor's is expected to assign a BB+ rating, one banker said. The company has performed very well, its senior notes trade at 7% and it's staying in the same segment, he noted, adding that the acquisition is not to create synergies but to expand into the European market. Schmalbach-Lubeca is the second-largest can manufacturer in Europe.