Moody’ Investors Service has today undertaken a series of rating actions related to Ineos Group Holdings S.A. (“Ineos” or the company) and its various debt instruments in conjunction with upgrading the corporate family rating (CFR) by one notch to B2 and assigning a positive outlook:
(i) The ratings on the first lien senior secured bank facilities and 2015 notes were upgraded by one notch to Ba3 / LGD 3 (31),
(ii) The ratings on 2015 second lien senior secured loans were upgraded by one notch to B3 / LGD 5 (73), and
(iii) The ratings on 2016 senior guaranteed notes were upgraded by one notch to Caa1 / LGD 5 (88).
The rating action follows the announcement of the successful closing of the refining joint venture transaction by Ineos with Petrochina (unrated). The negotiated terms of the transaction allow the company to retain full benefits of its integrated business model, as its downstream petrochemical production facilities remain integrated in the refining facilities of the joint venture. We also expect that the carving out of the more volatile refining operations will reduce the operating risk profile of the rated group and further mitigate financial risks previously associated with managing significant working capital requirements of the refining business within the leveraged capital structure.
The significant USD 1.015 b cash proceeds from the transaction will also allow Ineos to accelerate the deleveraging. Taking into account the expected reduction in debt from the proceeds of the transaction and the strong cash flow generation by the company in 2011, we expect the leverage to reduce towards 4.5x times on the fully adjusted basis. Strong operating performance in 1H 2011 and the likely supportive supply/demand fundamentals for the main co-monomers should continue to support to the deleveraging efforts.
We see limited potential for the incremental improvement in the operating performance in the near term, given the current high level of pricing and high utilisation rates enjoyed by Ineos. The positive outlook on the ratings reflects our expectation that the management will continue to execute on the programme of deleveraging and that the company will also be able to create additional flexibility within the capital structure, leading, over time, to a reduction in the interest burden. Further upward pressure would develop if leverage falls below 4.5x times on a sustainable basis. An upgrade of the rating would also require Ineos to maintain a very strong liquidity profile and proactively manage its maturities. A deterioration in operating performance leading to a sustained weakness in cash flow generation and weaker debt coverage metrics and/or a sustained negative FCF generation would put a negative pressure on the ratings.
The following ratings were affected by the rating action:
Ineos Group Holdings S.A.:
- Corporate Family Rating: B2 / PD – B2;
- 2016 senior g-teed notes – Caa1 / LGD 5 (88);
Ineos Holding Limited:
- First-lien senior g-teed bank facilities and notes – Ba3 / LGD 3 (31);
- Second lien senior loans — B3 / LGD 5 (73).
The principal methodology used in rating Ineos Group Holdings S.A. was the Global Chemical Industry Methodology published in December 2009.Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.