S&P Pplaces Constellium N.V. (CSTM) on CreditWatch Negative

Standard & Poor's Ratings Services said today that it had placed its 'BB-' long-term corporate credit rating on France-based aluminum producer Constellium N.V. (NYSE: CSTM) on CreditWatch with negative implications.

At the same time, we placed our 'BB-' rating on the €300 million bond maturing 2021 and our 'BB-' rating the $400 million bond maturing 2024 on CreditWatch with negative implications. The recovery rating on these bonds is '4'.

The CreditWatch placement follows Constellium's announced plans to acquire U.S.-based aluminum can sheet producer Wise Metals for an enterprise value of $1.4 billion (€1.1 billion). The CreditWatch reflects the possibility that we could lower Constellium's corporate credit rating to 'B+' from 'BB-' on the back of higher leverage after the transaction, depending on the financing structure.

Pro forma the acquisition, Constellium's adjusted funds from operations (FFO)-to-debt ratio will likely decline below the level of 20% that we view as commensurate with the current 'BB-' rating.

We think the acquisition will moderately strengthen Constellium's "fair" business risk profile. Wise Metals is a producer of can sheet serving brewers, soft drink bottlers, and can manufacturers, with 450,000 metric tons of hot mill capacities. It is the third-largest player in the North American beverage can sheet market.

The integration of Wise Metals will further improve Constellium's end-market and geographic diversity. Pro forma the acquisition, Constellium's presence in North America should double to 30%, while the incremental EBITDA in the first years will fully contribute to the group's packaging segment exposure, which we perceive as resilient, though competitive.

We intend to resolve the CreditWatch once the transaction is closed and once the financing structure is finalized, which we expect within the next several months.

If Constellium's adjusted FFO to debt declines materially below 20%, we would likely lower the rating by one notch to 'B+' following the transaction. We also expect liquidity to remain "adequate."

Conversely, we may affirm the rating if the company funds the transaction in a way that limits the increase in leverage, including a more sizable capital increase, so that the ratio of FFO to debt remains at about 20%, or adjusted debt to EBITDA below 4.0x pro forma the acquisition.

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