Ranking Motion: Moody’s downgrades Consolidated Vitality Finance, S.A. to B2; outlook destructive
International Credit score Analysis – 10 Dec 2020
Frankfurt am Predominant, December 10, 2020 — Moody’s Buyers Service (“Moody’s”) has as we speak downgraded Consolidated Vitality Finance, S.A.’s (CEF) company household ranking (CFR) to B2 from B1. Concurrently Moody’s has downgraded the rankings of CEF’s backed senior unsecured notes and backed senior secured financial institution credit score facility to B3 and B1 from B2 and Ba3, respectively.
Going ahead Moody’s will keep a company household ranking and a likelihood of default ranking (PDR) on the stage of CEF’s guardian and topco of the restricted group, Consolidated Vitality Restricted (CEL). Consequently Moody’s has assigned a B2 CFR and a B2-PD to CEL. The outlook on CEF modified to destructive from rankings underneath overview. The outlook on CEL is destructive. This ranking motion concludes the ranking overview for downgrade that was initiated on November 10, 2020.
With the CFR and PDR now assigned on the stage of Consolidated Vitality Restricted, Moody’s will withdraw the CFR on the stage of Consolidated Vitality Finance, S.A.
The downgrade of Consolidated Vitality Finance, S.A.’s rankings displays Moody’s expectations that credit score metrics of Consolidated Vitality Restricted (CEL) in 2021 won’t be in keeping with the necessities to take care of a B1 ranking, regardless that 2021 ought to see a substantial enchancment in Moody’s-adjusted gross leverage to beneath 7x from 21x as of finish Q3 2020 pushed by considerably improved working efficiency. Even this deleveraging trajectory positions the corporate weakly within the B2 ranking class. The downgrade of CEL’s ranking moreover displays the weakening of the corporate’s liquidity profile throughout 2020.
Moody’s expects that CEL’s EBITDA era in 2021 will profit from improved common pricing for methanol via 2021 in comparison with 2020. Moreover, Moody’s forecast incorporates the expectation that methanol manufacturing volumes in 2021 will profit from rising manufacturing and gross sales volumes as the corporate has restarted its M2 & M3 amenities in Trinidad & Tobago, which mixed have a nameplate capability of round 1.1 million metric tonnes each year. Based mostly on these assumptions, Moody´s expects that CEL will generate Moody’s adjusted EBITDA of round $500 million in 2021 leading to a Moody’s adjusted gross leverage of beneath 7x. Decrease than anticipated gross sales & manufacturing volumes as a consequence of operational points, inadequate gasoline provide or costs trending down from present ranges characterize a draw back to this view. Absent steep enhancements within the firm’s working efficiency. The corporate might want to refinance two upcoming debt maturities in June 2022 ($425 million) and September 2022 ($149 million) which may result in elevated curiosity expense topic to the continued restoration and market situations.. Moody’s additionally notes that the corporate’s $149 million native time period mortgage in Trinidad is at the moment categorised as a present monetary legal responsibility, as the corporate is at the moment not compliant with covenants underneath this mortgage, however covenant testing requirement has been waived till Q1-2021.
CEL’s liquidity profile has considerably weakened throughout 2020. The corporate’s unrestricted money stability as of Q3-20 was $46 million in comparison with $191 million on the finish of December 2019. Moreover, the corporate has drawn $74.5 million underneath its $225 million revolving credit score amenities (RCF) on the stage of CEF, $13 million underneath its RCF on the stage of Natgasoline and $50 million underneath a revolving credit score facility offered by its final shareholder throughout Q3-20. Throughout Q3-20, the corporate paid a $122 million payable, which was as a consequence of its final shareholder and originated from the acquisition of a remaining minority stake in CEL’s subsidiary G2X in 2018. YTD September 2020, the corporate’s Moody’s adjusted free money stream (FCF) (incl. curiosity paid, reimbursement of leases however excluding the cost to Proman Holding AG (Proman) associated to the acquisition of the G2X minority stake) was destructive at $162 million. Regardless of the substantial weakening of the liquidity profile, the corporate’s liquidity profile continues to be enough, supported by availabilities underneath its revolving credit score amenities, but additionally by our expectation that the corporate will be capable to generate Moody’s adjusted FCF in extra of $100 million in 2021 and optimistic FCF in This autumn-20. Regardless of the corporate’s liquidity profile nonetheless being enough, any underperformance to our expectation almost about operational money era or every other sudden funds together with funds to its shareholder will cut back CEL’s monetary flexibility and be destructive for the ranking.
Consolidated Vitality Finance, S.A.’s ranking positively displays its main market positions in methanol, that are underpinned by its aggressive value place as demonstrated by its excessive EBITDA margins pre 2020. Its world scale methanol vegetation and AUM (anhydrous ammonia, urea, ammonium nitrate, and melamine) advanced in Trinidad profit from pure gasoline bought at costs referenced to market costs of methanol, thereby considerably mitigating the destructive impression of unstable finish product promoting costs on its profitability. CEL’s ranking additionally displays the corporate’s working leverage, which is able to result in a right away earnings restoration as quickly as methanol costs enhance. CEL’s ranking additionally displays the corporate’s advanced capital construction with debt at numerous ranges of the group.
The corporate’s liquidity profile is enough. Inner sources include unrestricted money of $46 million as of Q3 2020, and $150 million of availability underneath its $225 million revolving credit score facility on the stage of CEL and $32 million availability underneath the Natgasoline revolving credit score facility, obtainable to cater liquidity wants on the stage of Natgasoline. Together with forecasted FFO era of round $300 million in 2021 these sources needs to be enough to cowl capital expenditures of round $100 million, working lease repayments of round $20 million, day after day money wants (which Moody’s estimates to be round 3% of annual gross sales) and to accommodate sudden swings in working capital throughout 2021. Moody’s ranking incorporates the expectation that the corporate will meet the covenant requirement underneath its revolving credit score facility always.
CEL is 100% owned by Proman Holding AG, which in flip is privately owned. Privately owned firm’s are inclined to have much less unbiased board illustration in comparison with listed firms. Proman Holding AG has different operations outdoors of CEL, in addition to extra money assets and excellent indebtedness. The CEL perimeter represents a cloth a part of its shareholders’ operations. CEL´s operations and the operations of its shareholder are extremely interdependent, entities managed or associated to Proman Holding AG present distribution, logistics and manufacturing companies to CEL at arms- size, leading to substantial associated celebration transactions. Up to now, Proman Holding AG has demonstrated its willingness to help CEL via fairness contributions or deferring the acquisition worth consideration for the minority stake in G2X, which CEL acquired from a Proman entity in 2018. CEL is holding minority shares in ammonia producers N2000 and CNC, with Proman additionally holding minority shares in these firms. In Moody’s view the group and capital construction of Proman/CEL is advanced, though Moody’s notes that has not too long ago been simplified, and the reimbursement of the deferred buy worth consideration for the G2X minority stake, at a time of elevated money wants of CEL as a result of weak working setting, has contributed to the weakening of CEL’s liquidity profile, whereas on the similar time its guardian offered a brand new unsecured $50 million RCF due 2027 to CEL.
RATIONALE FOR THE NEGATIVE OUTLOOK
The destructive outlook on CEL´s B2 ranking highlights its weak positioning within the B2 ranking class and the dangers that CEL’s leverage, in case of decrease than anticipated manufacturing volumes or weaker than anticipated common methanol costs in 2021 will stay above 7x and the corporate won’t be able to enhance its liquidity profile.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody’s may contemplate downgrading CEL’s ranking, if the corporate fails to cut back leverage to beneath 6x at midcycle situations (outlined because the transferring common methanol worth for the final 5 years) on a sustainable foundation or in case of an additional weakening of the corporate’s liquidity profile. CEL’s ranking may be downgraded if the corporate fails to refinance its 2022 maturities at the least one yr forward of maturities or publicly commits to viable refinancing plan at the least one yr forward of maturity.
Though unlikely at this stage, Moody’s may improve CEL’s ranking, if the corporate reduces leverage to beneath 5x at midcycle situations with EBITDA to Curiosity Expense near 4x and the corporate strengthens its liquidity profile.
Consolidated Vitality Finance, S.A.’s excellent senior unsecured bonds are rated B3, one notch beneath the B2 CFR, reflecting the precedence rating of the senior secured time period amenities and the $225 million revolving credit score facility that are rated B1. It additionally displays the structural subordination of CEF’s collectors to these of its US based mostly working subsidiary Natgasoline which isn’t a guarantor to CEF’s bonds and whose monetary debt is basically secured in opposition to respective belongings. The ranking of the senior secured time period amenities is B1, one notch above CEL’s CFR, due to their precedence rating within the capital construction.
The principal methodology utilized in these rankings was Chemical Trade revealed in March 2019 and obtainable at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1152388. Alternatively, please see the Ranking Methodologies web page on www.moodys.com for a replica of this system.
For additional specification of Moody’s key ranking assumptions and sensitivity evaluation, see the sections Methodology Assumptions and Sensitivity to Assumptions within the disclosure type. Moody’s Ranking Symbols and Definitions might be discovered at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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Moritz Melsbach Asst Vice President - Analyst Company Finance Group Moody's Deutschland GmbH An der Welle 5 Frankfurt am Predominant 60322 Germany JOURNALISTS: 44 20 7772 5456 Consumer Service: 44 20 7772 5454 Matthias Hellstern MD - Company Finance Company Finance Group JOURNALISTS: 44 20 7772 5456 Consumer Service: 44 20 7772 5454 Releasing Workplace: Moody's Deutschland GmbH An der Welle 5 Frankfurt am Predominant 60322 Germany JOURNALISTS: 44 20 7772 5456 Consumer Service: 44 20 7772 5454
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