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Hart's $US18B packaging empire debt 'probably enough'

New Zealand billionaire Graeme Hart's $US18.1 billion of debt leveraged over Reynolds Group is probably enough, according to the company's chief executive.

Paul McBeth
Mon, 02 Apr 2012

BUSINESSDESK: New Zealand billionaire Graeme Hart’s $US18.1 billion of debt leveraged over his expanding packaging empire is probably enough, according to the company’s chief executive.

Reynolds Group Holdings boss Tom Degnan told analysts the packaging company isn’t looking for another debt-funded acquisition and will probably look at reducing its level of leverage relative to earnings and equity.

Total debt, including a refinancing debt sale in February, is 6.2 times adjusted pro-forma earnings before interest, tax, depreciation and amortisation of US$2.73 billion in the 2011 calendar year.

“We are comfortable where our leverage is today and we are not going to go out and do something that would raise the leverage higher. And, in fact, we’ll probably be deleveraging a bit,” Degnan said in a conference call last week.

“I’ve been pretty consistent in reporting anything in our space we’re looking at, but we won’t be doing anything of a kind of $US5 billion size.

"It will be more in the tack-on area if we do any at all.”

The rising level of debt put rating agencies Standard & Poor’s and Moody’s Investors Service on edge last year, with both signalling the leveraged $US4.5 billion purchase of Graham Packaging was stretching Reynolds Group’s ability to keep on top of interest repayments.

The Graham Packaging deal came just one year after the $US6.5 billion takeover of Illinois-based Pactiv.

Hart started building his packaging empire in Reynolds Group in 2006 with his takeover of Carter Holt Harvey, adding Alcoa’s packaging business the following year.

He later bought International Paper’s beverage packaging unit and Swiss company SiG.

As at December 31, the company had amassed total assets worth $US21.89 billion on total liabilities of $US22.07 billion.

In February, Reynolds Group raised $US1.25 billion of new debt to refinance bonds set to mature in 2017 and add to its cash buffer.

Chief financial officer Allen Hugli told analysts the packaging group has some extra cash on its balance sheet which acts as a liquidity buffer, with some US$1.2 billion in cash at the end of the calendar year.

“The owner and all of us are relatively conservative people so we always like to have a bit of extra cash sloshing around,” he said.

“We don’t need all of it but we certainly like to have it there. It’s a nice safety blanket to have.”

Reynolds Group revenue climbed 74% to $US11.79 billion in the year, with adjusted EBITDA up almost 70% to $US2.53 billion.

The packaging company widened its bottom-line loss to $US417 million from $US97 million a year earlier.

Paul McBeth
Mon, 02 Apr 2012
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Hart's $US18B packaging empire debt 'probably enough'