Moody's says Ardagh purchase of VNA does not add to risk of default

Credit ratings agency Moody’s says the €1.275 billion deal announced by glass group Ardagh creates no extra risk it will default on its €3.5 billion debt.

Irish-backed Ardagh announced this week it had made an irrevocable offer to buy glass bottle manufacturer Verallia North America (VNA) from its parent, Saint Gobain, for €1.275 billion.

In common with some of the group’s other recent takeovers, Ardagh plans to fund the purchase by borrowing $1.45 billion (€1.1 billion) from the bond markets.

Moody’s, an international agency that measures companies’ ability to repay their debts, reacted by saying that it was reaffirming Ardagh’s overall existing rating at B2.

This means the agency believes the VNA deal is unlikely to affect Ardagh’s ability to meet its liabilities and that any risk of it defaulting on its debts remains unchanged. Moody’s considers a B rating to be “speculative” and “subject to high credit risk”.

Ardagh had net debt of €3.53 billion at the end of last September, when it made its last quarterly report to bondholders. Its available cash amounted to €354.6 million.

Some of its debt is due for repayment in June 2016, but about 80 per cent of its liabilities have to be repaid in 2017 and 2020.

The VNA deal would add about €1.2 billion in sales. It is understood Ardagh believes it will ease its overall debt burden in relation to earnings.

Its current net debt is 5.2 times earnings before calculating for interest, tax, depreciation and amortisation. The addition of VNA to the group is expected to reduce this ratio to less than five times.

VNA is part of a larger glass manufacturing operation owned by French-based Saint Gobain. Ardagh’s proposed purchase is subject to approval by US competition regulators.

Luxembourg-based Ardagh is chaired by Irish businessman Paul Coulson and has its roots in the eponymous Dublin-listed glass bottle maker. The group has global sales of €5.4 billion and manufactures bottles and containers for the food and drink industries.