Owens-Brockway Glass Container, Inc. -- Moody's Assigns Ba3 CFR to O-I Glass, Inc.; outlook stable

Rating Action: Moody's Assigns Ba3 CFR to O-I Glass, Inc.; outlook stableGlobal Credit Research - 10 Aug 2022Approximately $3.4 billion of rated debt affectedNew York, August 10, 2022 -- Moody's Investors Service, ("Moody's") assigned a Ba3 Corporate Family Rating (CFR), Ba3-PD Probability of Default Rating (PDR) and SGL-1 Speculative Grade Liquidity rating to O-I Glass, Inc. (O-I). Concurrently, Moody's withdrew Owens-Illinois Group, Inc.'s B1 CFR, B1-PD Probability of Default Rating, and SGL-1 Speculative Grade Liquidity rating. Moody's also upgraded the ratings of OI European Group B.V to Ba3 from B1 and the ratings of Owens-Brockway Glass Container, Inc. to B2 from B3. The outlook has been changed to stable from positive.The ratings upgrade reflect Moody's expectation of the continued strengthening of O-I's credit profile following the successful and on-going repositioning of the company's portfolio, greater predictability of free cash flow generation, and a commitment by the management team to further reduce leverage. For year-end 2022, we project total-debt-to EBITDA (inclusive of Moody's adjustment) to be around 4.4x and to approach 4.0x by year end 2023.The stable outlook reflects Moody's expectation that O-I will grow revenue organically, improve profitability and generate free cash flow that can be used to reduce debt."Despite increased global economic and financial risks, we expect O-I's defensive end markets, leading market position and lower leverage to provide operating stability, cash flow predictability and increased financial flexibility," said Emile El Nems, VP – Senior Credit Officer at Moody's. Assignments: ..Issuer: O-I Glass, Inc. .... Corporate Family Rating, Assigned Ba3.... Probability of Default Rating, Assigned Ba3-PD.... Speculative Grade Liquidity Rating, Assigned SGL-1Upgrades:..Issuer: OI European Group B.V.....Senior Unsecured Regular Bond/Debenture, Upgraded to Ba3 (LGD4) from B1 (LGD4)..Issuer: Owens-Brockway Glass Container, Inc.....Senior Unsecured Regular Bond/Debenture, Upgraded to B2 (LGD5) from B3 (LGD5)Withdrawals:..Issuer: Owens-Illinois Group, Inc..... Corporate Family Rating, Withdrawn , previously rated B1.... Probability of Default Rating, Withdrawn , previously rated B1-PD .... Speculative Grade Liquidity Rating, Withdrawn , previously rated SGL-1 Outlook Actions: ..Issuer: O-I Glass, Inc. ....Outlook, Assigned Stable ..Issuer: OI European Group B.V.....Outlook, Changed To Stable From Positive..Issuer: Owens-Brockway Glass Container, Inc.....Outlook, Changed To Stable From Positive..Issuer: Owens-Illinois Group, Inc.....Outlook, Changed To Rating Withdrawn From PositiveRATINGS RATIONALEO-I's Ba3 Corporate Family Rating reflects the company's (i) leading market position as the largest glass packaging company in the world (measured by revenue and volume), (ii) broad manufacturing presence with 70 manufacturing facilities across 19 countries, (iii) high exposure to defensive end markets (beer, soft drinks, spirits, and food), and (iv) strategic relationships with blue chip customers. In addition, the rating is supported by O-I's revenue, EBITDA and operating free cash flow visibility with about 55% of sales being under long-term contracts, and which include provisions for raw material and energy costs pass-through. At the same time Moody's rating takes into consideration the company's debt leverage, European exposure, product concentration risk, low growth, and the expected levels of elevated capital expenditures over the next two years.O-I's SGL-1 Speculative Grade Liquidity Rating reflects Moody's view that the company will maintain very good liquidity over the next 12 to 18 months, generate free cash flow and maintain significant revolver availability. The company's very good liquidity is supported by (i) $661 million in cash, (ii) a $1,250 million undrawn revolving credit facility expiring in March 2027, and (iii) pre-funding the agreed upon $610 million in asbestos liabilities. The revolver and term loan (not rated by Moody's) have one financial covenant, a maximum net senior secured leverage ratio of 2.5x. As of June 30, 2022, O-I was in compliance with its financial covenants. Moody's expects the company to comply and maintain a healthy cushion under these covenants over the next 12-18 months.ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONSEnvironmental, social and governance risks (ESG) are incorporated into O-I's credit profile. Governance risk considered by Moody's is O-I's commitment towards (i) lower leverage and (ii) maintaining a conservative approach to liquidity. Moody's changed O-I's organizational structure risk score to moderately negative (3) from highly negative (4) after Paddock (a direct subsidiary of O-I) reached an agreement and emerged out bankruptcy court by accepting to fund a trust covering all asbestos liabilities. This final settlement absolves O-I from pending and future claims related to asbestos. Moody's expects these asbestos liabilities to be fully funded from additional borrowing under the senior secured credit facility, and for which we had already adjusted O-I's debt. Lastly, O-I's moderately negative organizational structure score stems from the company's complex corporate structure, with multiple tiers of holding and operating companies. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings could be upgraded if adjusted debt-to-EBITDA is below 4.0x, EBITDA-to-interest coverage is above 5.5x, and free cash-to-debt is above 7.5%.The ratings could be downgraded if adjusted debt-to-EBITDA is above 4.75x, EBITDA-to-interest coverage is below 4.5x, and free cash-to-debt is below 5.0%.The principal methodology used in these ratings was Packaging Manufacturers: Metal, Glass and Plastic Containers published in December 2021 and available at https://ratings.moodys.com/api/rmc-documents/360650. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.Headquartered in Perrysburg, Ohio, Owens-Illinois Group, Inc. is the leading global glass packaging company (measured by revenue). At June 30, 2022, O-I's last twelve months revenue was $6.7 billion.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. 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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 https://ratings.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 https://ratings.moodys.com/documents/PBC_1288235.At least one ESG consideration was material to the credit rating action (s) announced and described above.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 https://ratings.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 https://ratings.moodys.com.Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating. Emile El Nems 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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