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Crown Metal Packaging Canada LP -- Moody's changes the outlook for Crown Holdings to positive

Rating Action: Moody's changes the outlook for Crown Holdings to positiveGlobal Credit Research - 28 Jan 2022Approximately $8.06 billion (USD equivalent) of debt securities affectedNew York, January 28, 2022 -- Moody's Investors Service ("Moody's") changed the outlook for Crown Holdings, Inc. ("Crown") to positive from stable. At the same time, Moody's affirmed Crown's Ba2 corporate family rating (CFR) and Ba2-PD probability of default rating, and all other instrument ratings. The company's speculative grade liquidity Rating (SGL) was maintained at SGL-2."The positive outlook reflects Crown's lower debt load after it applied the proceeds from the sale of its European tinplate business to pay down debt, and our expectation that the company will focus on managing leverage," says Motoki Yanase, VP-Senior Credit Officer at Moody's.Affirmations:..Issuer: Crown Americas LLC....Senior Secured Bank Credit Facility, Affirmed Baa2 (LGD2)....Senior Unsecured Regular Bond/Debenture, Affirmed Ba3 (LGD5)..Issuer: Crown Cork & Seal Company, Inc.....Senior Unsecured Regular Bond/Debenture, Affirmed B1 (LGD6)..Issuer: Crown European Holdings S.A.....Senior Secured Bank Credit Facility, Affirmed Baa2 (LGD2)....Senior Unsecured Regular Bond/Debenture, Affirmed Ba2 (LGD3)..Issuer: Crown Holdings, Inc..... Corporate Family Rating, Affirmed Ba2.... Probability of Default Rating, Affirmed Ba2-PD..Issuer: Crown Metal Packaging Canada LP....Senior Secured Bank Credit Facility, Affirmed Baa2 (LGD2)Outlook Actions:..Issuer: Crown Americas LLC....Outlook, Changed To Positive From Stable..Issuer: Crown Cork & Seal Company, Inc.....Outlook, Changed To Positive From Stable..Issuer: Crown European Holdings S.A.....Outlook, Changed To Positive From Stable..Issuer: Crown Holdings, Inc.....Outlook, Changed To Positive From Stable..Issuer: Crown Metal Packaging Canada LP....Outlook, Changed To Positive From StableRATINGS RATIONALEIn October 2021, Crown redeemed E650 million (about $753 million) and $1 billion of senior notes, using the proceeds from the sale of its European tinplate business completed in August 2021. The divestiture brought in about E1.9 billion ($2.3 billion) of proceeds, which was used to reduce over 20% of total debt at the end of September 2021. The debt repayment in October, on a pro forma basis, would have improved leverage to around 3.4x from 4.2x for the 12 months ending September 2021.Shortly after the divestiture, Crown announced in December 2021 its plan to repurchase its shares for an aggregate amount of up to $3.0 billion through the end of 2024. The amount of total share repurchase is significant, roughly three times the $1.2 billion - $1.3 billion of annual cash flow from operations that Crown recorded in 2019 and 2020. The total repurchase amount is also over one-third of the company's total debt, which stood at $7.98 billion at the end of September 2021.Moody's expects the share repurchase will drag down the future cash flow, which could increase future leverage, depending on the timing of the buybacks. Nevertheless, if the company can prioritize the management of total debt relative to shareholder returns and execute the announced share repurchase in a prudent manner, leverage would likely be maintained at a moderate level below 4.0x.Crown's credit profile reflects the consolidated industry structure in the can segment, high exposure to stable food and beverage end markets, and a large base of installed equipment in the transit packaging segment that drives a high percentage of recurring sales of consumables. Crown also benefits from geographic diversification and good liquidity.On the other hand, Crown's credit profile is constrained by the company's high customer and product concentration of sales and exposure to cyclical end markets in the transit packaging segment. Additionally, the fragmented and competitive industry structure in the transit packaging segment makes growth and margin expansion challenging. Crown also has a legacy asbestos liability, which Moody's adds as a part of total debt.The SGL-2 Speculative Grade Liquidity Rating reflects Moody's expectation that Crown will maintain good liquidity over the next 12 months given its strong cash flow, significant availability under its $1.65 billion revolving credit facility expiring in 2024, and substantial covenant compliance headroom. Moody's expects Crown to maintain between $500 million and $600 million of cash for the next several years. As of September 2021, Crown had $1.585 billion of revolver availability.ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONSMoody's changed the assessment of Board Structure, Policies and Procedures, a part of the governance score, to 2 from 3, to reflect diversity and independence of the board, and compensation design comparable to the similarly rated peers. The overall governance issuer profile remains G-3 (moderately negative), reflecting the company's financial strategy and large debt-financed acquisitions in the past. The outstanding asbestos liability also adds potential debt-like obligations and increases the company's adjusted total debt although the amount remains less than 5% of Crown's reported total debt.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSMoody's could upgrade the ratings if Crown sustainably improves credit metrics within the context of a stable competitive environment and maintains good liquidity. Specifically, the ratings could be upgraded if total debt/EBITDA is sustained below 4.0x, free cash flow/debt is over 8.0%, or EBITDA/Interest expense is over 6.0x.Moody's could downgrade the ratings if credit metrics, liquidity or the competitive environment deteriorate. Specifically, the rating could be downgraded if total debt/EBITDA rises above 4.6x, free cash flow/debt falls below 6.0%, or EBITDA/Interest expense is below 5.0x.The principal methodology used in these ratings was Packaging Manufacturers: Metal, Glass and Plastic Containers published in December 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287890. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Headquartered in Yardley, Pennsylvania, Crown Holdings, Inc. (NYSE: CCK), is a global manufacturer of steel and aluminum containers for food, beverage, and consumer products. Crown also manufactures protective packaging products and solutions. For the 12 months that ended September 30, 2021, the company generated about $11 billion in revenue excluding divested European tinplate business.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Motoki Yanase VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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