2012年5月11日 / 晚上6点53分 / 5 年前

TEXT-S&P affirms Libbey Inc ratings

Overview	
     -- U.S.-based Libbey Inc. is refinancing its senior secured notes. As 	
part of the transaction, Libbey will reduce its underfunded pension 	
obligations by about $80 million, yet increase its balance sheet debt by about 	
$100 million.	
     -- We are assigning a 'B+' issue-level rating and '3' recovery rating to 	
the company's proposed $450 million of senior secured notes due 2020. The 	
corporate credit rating is affirmed at 'B+'.	
     -- The outlook is stable, reflecting our view that although credit 	
measures will weaken slightly versus actual year-end 2011, they will improve 	
over the next year and Libbey will maintain adequate liquidity.	
	
Rating Action	
On May 11, 2012, Standard & Poor's Ratings Services affirmed its 'B+' 	
corporate credit rating on Toledo, Ohio-based Libbey Inc. The outlook is 	
stable. At the same time, we assigned a 'B+' issue-level rating to Libbey's 	
proposed senior secured notes due 2020. The recovery rating on the new notes 	
is '3', indicating our expectation of meaningful (50% to 70%) recovery in the 	
event of a payment default.	
	
The new notes will be issued at the operating company level through its Libbey 	
Glass Inc. subsidiary. The company is also seeking to extend its existing $100 	
million asset-based lending (ABL) revolving term loan (unrated) by one year to 	
May 2017. Our issue-level ratings are subject to review of final 	
documentation. We understand that Libbey will use the net proceeds to 	
refinance its existing senior secured notes and reduce its underfunded pension 	
obligations by about $80 million. The ratings on the existing 10% senior 	
secured notes due 2015 will be withdrawn after the notes have been repaid.	
	
Pro forma for the transaction, we estimate that the company will have about 	
$490 million of reported debt outstanding.	
	
Rationale	
The ratings on reflect our view of the company's "aggressive" financial risk 	
profile and "weak" business risk profile. Our financial risk profile 	
assessment reflects Libbey's high leverage, in part due to its unfunded 	
pension and postretirement medical benefit obligation (these obligations are 	
included in our standard adjustments to debt calculations). Pro forma for the 	
notes issuance, as of the 12 months ended Dec. 31, 2011, we estimate the ratio 	
of lease- and pension-adjusted total debt to EBITDA will increase to 4.8x, and 	
funds from operations (FFO) to total debt will remain flat at about 14%, 	
compared to 4.4x and 14%, respectively, for the actual reported results at 	
fiscal year-end 2011. However, these ratios will remain within the ranges of 	
our indicative ratios for an aggressive financial risk profile, which include 	
leverage between 4x and 5x and FFO to total debt of 12% to 20%. 	
	
Key credit factors considered in our "weak" business risk assessment include 	
Libbey's narrow business focus, capital-intensive operations, and exposure to 	
volatile input costs, yet significant presence in the U.S. foodservice 	
glassware sector. Libbey primarily manufactures glass tableware products. 	
Although the company also distributes and sources ceramic dinnerware and 	
metalware, it is our opinion that Libbey is narrowly focused, as we estimate 	
about 90% of the company's sales are from glassware products. It is our 	
opinion that the glassware industry is highly competitive, capital-intensive, 	
and vulnerable to economic cycles and volatility in the price of natural gas, 	
which is used in the manufacturing process. Despite declines in demand during 	
the recent economic downturn, we believe long-term growth prospects remain 	
favorable for the U.S. foodservice industry. Libbey maintains the lead 	
position in glassware sales within the U.S. foodservice sector, and the 	
company's significant installed base is a competitive advantage. We estimate, 	
historically, close to half of the company's sales and EBITDA are from the 	
U.S. foodservice channel. We believe this provides some protection against the 	
threat of imports and some stability to Libbey's sales and cash flow because 	
replacement purchases drive a significant portion of glassware sales to the 	
foodservice channel, and we believe switching costs are high. 	
	
Although Libbey has experienced a rebound in profitability to prerecessionary 	
levels, reflecting improved demand for its products in the U.S. and China and 	
the potential for growth in the foodservice industry, the company continues to 	
be exposed to input cost volatility. For the 12 months ended March 31, 2012, 	
revenues increased about 2%, and we estimate that the company's adjusted 	
EBITDA margins were essentially flat at around 17% versus the prior-year 	
period. During 2011, margins were weakened by furnace rebuilds (which raised 	
the company's operating leverage) as well as higher expenses and input costs 	
(primarily soda ash, energy, steel, transportation and labor). However, a 	
price increase went into effect in February 2012, primarily in the U.S. and 	
Canada, to address these higher costs, which we believe should enable Libbey 	
to maintain its margins. The company had improved its credit measures over the 	
past year due to prepayment of debt from excess free cash flow, which we 	
expect to continue over the near to medium term.	
	
Although our estimate of adjusted leverage will increase on a pro forma basis 	
for 2011 relative to actual year-end results, we expect Libbey's credit 	
metrics to gradually improve from continued debt reduction and EBITDA growth. 	
Our base-case scenario assumptions include:	
	
     -- Low-single-digit revenue growth, particularly from the U.S. 	
foodservice segment and sales growth in China.	
     -- Adjusted EBITDA margins will remain flat at about 17% through 2012.	
     -- Positive free operating cash flow (FOCF) after capital expenditures of 	
about $25 million in 2012.	
     -- No dividends to shareholders.	
     -- No acquisition activity in the next 12 months.	
	
Based on our forecast, we estimate that by the end of 2012, the company's 	
credit protection measures will improve slightly, including leverage near 	
4.5x, with FFO to total debt remaining around 14%, and still be in line with 	
indicative ratios for an aggressive financial risk profile.	
	
Liquidity	
We believe Libbey has "adequate" liquidity to meet its needs over the next 	
year. This is based on the following information and assumptions: 	
	
     -- We expect liquidity sources (including cash, discretionary cash flow, 	
and revolving credit availability) to exceed uses by more than 1.2x over the 	
next 12 months.	
     -- We expect net sources to be positive, even with a 15% drop in EBITDA.	
     -- As of March 31, 2012, the company had about $33 million in cash and 	
$64 million of availability on its existing $100 million ABL. The ABL will be 	
extended to 2017 if the proposed amendment is approved. A percentage of the 	
company's eligible accounts receivable and inventory governs a borrowing base 	
that limits availability on the revolving credit facility.	
     -- Over the next year, we believe the company will generate FOCF of more 	
than $25 million.	
     -- We believe capital expenditures are likely to be about $40 million to 	
$45 million in 2012 and 2013.	
	
Recovery analysis	
We have assigned Libbey Glass Inc.'s senior secured notes due 2020 an 	
issue-level rating of 'B+', the same as the corporate credit rating on the 	
parent company, Libbey Inc., with a recovery rating of '3', indicating our 	
expectation of meaningful (50% to 70%) recovery in the event of a payment 	
default. For the complete recovery analysis, see Standard & Poor's recovery 	
report on Libbey Glass to be published following this report on RatingsDirect.	
	
Outlook	
Our rating outlook on Libbey is stable. We expect the company to maintain its 	
leading market positions, continue to improve its operating performance, and 	
gradually strengthen credit measures following an initial increase in leverage 	
resulting from this refinancing. This includes our expectations for Libbey to 	
reduce leverage closer to 4.5x in 2012. 	
	
If the company experiences operating difficulties and credit measures 	
deteriorate, such that leverage increases well beyond 5x, or if the company's 	
liquidity is materially pressured, we could lower the ratings. We estimate 	
EBITDA would need to fall about 15% for leverage to rise to 5.5x over the next 	
year (assuming constant debt levels) which could be driven by a drop in 	
restaurant/bar services and/or higher commodity and raw material costs. An 	
upgrade is unlikely over the outlook period given the company's weak business 	
risk profile, unless Libbey were to broaden its product focus while reducing 	
and sustaining leverage below 4.0x.	
	
Related Criteria And Research	
     -- Methodology And Assumptions: Liquidity Descriptors For Global 	
Corporate Issuers, Sept. 28, 2011	
     -- Key Credit Factors: Business And Financial Risks in the Branded 	
Consumer Products Industry, Sept. 10, 2008.	
     -- Business Risk/Financial Risk Matrix Expanded, May 27, 2009	
     -- Corporate Ratings Criteria 2008, April 15, 2008	
	
Ratings List	
Rating Affirmed	
Libbey Inc.	
 Corporate credit rating        B+/Stable/--	
	
Ratings Assigned	
Libbey Glass Inc.	
 Senior secured	
  $450 mil. notes due 2020      B+	
     Recovery rating            3

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