Credit rating agency Standard & Poors (S&P) has signalled a likely upgrade of Ardagh Glass following its €660 million buyout of the European glass unit of British group Rexam.

In a note yesterday, S&P said it was reviewing Ardagh's B- corporate credit rating "with positive implications" in light of the transaction. Its stance is in contrast to that of rival agency Moody's, which put the firm on review for a possible downgrade.

S&P said the deal was subject to competition authority approval in Germany and Poland, but cited its "likely positive effects" on Ardagh's credit profile. The agency said the enlarged Ardagh will become one of the largest glass packaging providers in Europe with annual revenues of about €1.25 billion.

"It will benefit from a wider range of products and a more diverse geographic presence. Although the acquisition will result in material additional leverage, this is likely to be more than offset by improved earnings from the acquisition, resulting in improved credit measures."

S&P will meet Ardagh management to obtain a better understanding of the benefits of the proposed acquisition and the group's long-term financial plans before finalising a new rating. "Any upgrade is expected to be limited to one notch," it said. Ardagh will continue to have "sufficient liquidity" owing to revolving credit and invoice-discounting facilities and cash balances, according to S&P. "The group's liquidity included €73.9 million of undrawn committed lines at September 30th, 2006. In addition, Ardagh has arranged a €150 million working capital revolving credit facility on a pro-forma basis for the acquisition."

It said Ardagh's liquidity needs to arise primarily from its requirement to fund working capital in a "highly-seasonal business" and fund capital expenditure and debt service requirements. "The majority of the group's financial covenants have been suspended until 2008 due to a deterioration in profitability."