Jersey-based Ardagh Glass Ltd. has seen its debt downgraded by Standard & Poor“s Ratings Services as it announced a EUR 75 million (GBP 50 million) takeover of the UK glass business of Rexam plc. Ard…
Jersey-based Ardagh Glass Ltd. has seen its debt downgraded by Standard & Poor“s Ratings Services as it announced a EUR 75 million (GBP 50 million) takeover of the UK glass business of Rexam plc. Ardagh also owns British container glass producer Rockware. Standard & Poor“s said it lowered its long-term corporate credit rating on Ardagh Glass to “BB-“ from “BB“ due to higher pressure on the group“s credit-protection measures. UK gas prices could hit profits, according to S&P. Ardagh“s purchase of the third-largest glass maker in the UK, Yorkshire-based Rexam Glass Barnsley, is seen as a defensive tactic against stiffer competition expected as soon as Sean Quinn“s giant new plant in Cheshire, northern England goes into full production in 12 months“ time. Following lobbying by Rockware, the UK government announced in March 2005 that it would hold a public inquiry into the Quinn plant, a move which could delay the opening. Ardagh has financed the Rexam deal with GBP 35 million in borrowings and GBP 15 million in cash. Rexam has a single plant in Barnsley and industry sources expect Ardagh to cut costs through the centralisation of sales, marketing and administration within Ardagh. The takeover gives Ardagh capacity of over one million tonnes of glass per annum and allows the group to improve productivity through higher volumes which it will need to compete with Sean Quinn in the future. Ardagh is buying Rexam at a discount to its net assets of GBP 59 million. Rexam has spent up to GBP 40 million over the past three years on modernisation of its plant. Rexam had sales of GBP 101 million, EDBITDA of GBP 14 million and operating profit of GBP 3 million in 2004. S&P credit analyst Vanessa Brathwaite said the ratings downgrade “reflects Standard & Poor“s expectation that Ardagh will be unable to maintain adequate credit-protection measures for the previous ratings as a result of continuing difficult market conditions and the group“s increasing debt levels”. Standard & Poor“s expects that volatile natural gas prices and stronger competition in the UK market will put pressure on Ardagh“s profits. As a result, the group is unlikely to generate sufficient cash flow to offset its increased leverage, thereby weakening its financial profile. “Ardagh is expected to continue to generate sufficient free cash flow to fund working capital, debt servicing, and capital expenditure requirements,” the ratings agency said.