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19 May 2004
MOODY'S DOWNGRADES CELANESE'S UNSECURED RATING TO Ba3; ASSIGNS Ba2 RATING TO BCP SECURED FACILITIES; OUTLOOK STABLE
Approximately 2.5 Billion of Long-Term Debt Affected
New York, May 19, 2004 -- Moody's Investors Service downgraded the senior unsecured ratings of CNA
Holdings Inc., a subsidiary of Celanese AG, to Ba3
from Baa2. This action follows the recent acquisition of over 84%
of the shares of Celanese AG by BCP Caylex Holdings Luxembourg S.C.A.
("BCP"). In addition, Moody's assigned Ba2 ratings
to BCP's guaranteed senior secured credit facility, letter
of credit facility and term loan. Moody's also assigned a
Ba3 senior implied rating, a B1 issuer rating, and a B2 rating
to BCP's guaranteed senior subordinated notes. Proceeds from
the debt offering and bank facility, combined with a $525
million equity capital contribution and $165 million holdco preferred
PIK notes, will be used by BCP to refinance 1.3 billion
of senior secured bridge loans and make other required payments over the
next six months. BCP recently acquired the majority of the stock
of Celanese AG for roughly 1.35 billion. The ratings
outlook is stable. This is a first time rating for BCP, which
is owned by an affiliate of The Blackstone Group. The following
summarizes the ratings activity.
CNA Holdings Inc. -- Senior unsecured to Ba3 from Baa2
BCP Caylux Holdings Luxemburg S.C.A.
Senior Implied at Ba3
Guaranteed senior secured revolver, 313 million ($380
million) due 2009 at Ba2
Guaranteed senior secured letter of credit facility, 187 million
($227 million) due 2011 at Ba2
Guaranteed senior secured term loan B, 500 million ($608
million) due 2011at Ba2
Senior unsecured issuer rating at B1
Guaranteed senior subordinated notes, 1,285 million
($1,565 million) of US dollar and Euro denominated notes
due 2014 at B2
Celanese AG senior unsecured credit facilities
CNA Holdings Inc. issuer rating
Celanese Americas Corporation rating for commercial paper
The ratings take into account BCP's relatively high leverage for
a cyclical commodity producer with pro forma debt to EBITDA, adjusted
for the debt offering and certain expenses, of 5.0 times
for the LTM ended March 31, 2004, significant exposure to
volatile petrochemical feedstocks, an indenture that allows significant
borrowings at subsidiary companies, and potential exposure to exchange
rates. The ratings are supported by Celanese's competitive
position in key businesses, its world scale production facilities,
and its moderate operating performance over the past two years despite
a weak economic environment. Although margins have begun to recover
in the company's businesses, feedstock volatility presents
an ongoing challenge. EBITDA margins (excluding extraordinary items)
have been at roughly 11% over the past two years despite the volatility
in feedstock prices.
The ratings also include the opportunity for significant cost reductions
once BCP is able to consolidate its position in Celanese AG and gain full
operating control (see comments below regarding the Domination Agreement).
In addition, the advantaged-cost methanol supply agreement
with Southern Chemical Company should positively impact earnings and cash
flow in 2005. The ratings also recognize significant competitive
barriers, including process know-how and requirements for
world scale production capabilities to remain competitive.
The notching of the senior secured credit facility (rated Ba2) one level
above the senior implied reflects the relative amount of secured debt
in the capital structure and more than adequate asset coverage,
even on a distressed basis. BCP and Celanese Americas Corporation
will be co-borrowers under the revolver. The secured facilities
will be guaranteed by all domestic operating subsidiaries and a security
interest in substantially all of the domestic tangible and intangible
assets. The notching of the senior unsecured notes (rated Ba3)
on level with the senior implied reflects their contractual subordination
to the secured debt. The notching of the senior subordinated notes
(rated B2) two levels below the senior implied reflects the subordination
to a substantial amount of secured and senior unsecured debt, substantial
level of earnings and assets at non-guarantor subsidiaries,
as well as the potential for additional borrowings at BCP or Celanese's
operating subsidiaries that could further subordinate this debt.
Prior to the Domination Agreement the guarantees provided to the subordinated
notes will not be meaningful. Subsequent to the domination agreement,
only the company's domestic operating subsidiaries will provide
Moody's notes that the indentures for the subordinated notes contain many
standard covenants. However, the level of additional indebtedness
and restricted payments allowed under the indenture raises concern.
The subordinated note indenture allows the company to issue over $700
million of additional indebtedness at BCP or its operating subsidiaries
without being subject to the 2 times fixed charge coverage ratio.
In addition, Moody's does not believe that the 2 times fixed
charge coverage will be a barrier to additional borrowings over the near-term.
BCP intends to enter into a domination and profit and loss transfer agreement
(the "Domination Agreement") with Celanese A.G.,
which should give them operating control and access to 100% of
the profits and losses from Celanese's operating subsidiaries,
irrespective of any remaining minority shareholders. However,
BCP will have to offer the remaining shareholders fair cash compensation
based upon a valuation of the company at that time. Hence,
the actual payment to minority shareholders could be larger than the 32.50
per share recently paid by BCP. Moody's believes that the
payment could be higher than the amount current estimated, but that
any excess will not be more than 50-75 million. Once
the Domination Agreement is completed, BCP is expected to merge
with Celanese Americas Corporation and become a US domiciled company.
The stable outlook reflects Moody's expectation that Celanese will encounter
minimal problems in the completion of the Domination Agreement,
or any other material issues, as it transitions to new corporate
control, thus enabling the company to maintain its market positions
and profitability. The outlook also reflects Moody's expectation
that neither BCP, nor any other holding companies above BCP,
will issue debt to reduce the 525 million of contributed equity.
The ratings could be lowered if the company substantially reduces the
level of contributed equity, fails to achieve yearly free cash flow
of at least $100 million (excluding extraordinary items and restructuring
costs), or if financial performance is significantly weaker than
anticipated. Quick completion of the Domination Agreement,
a faster expansion of operating margins, and an increase in cost
savings from the conversion to a US company could put positive pressure
on the ratings over the next two years.
Celanese's business is divided into four segments: Chemical Products,
Ticona, Acetate Products, and Performance Products.
The Chemical Products business, representing roughly two-thirds
of revenues segment operating profits, is comprised of the acetyls,
emulsions (including vinyl acetate monomer) and polyvinyl alcohol businesses.
Primary end markets for these products are paints and coatings,
adhesives, and chemical intermediates. Ticona polymers supplies
polyester and polyacetyl polymers to the automotive, electrical
and electronics markets and represent about 16% of revenues and
14% of segment operating profit. Acetate Products are primarily
filter tow and filament for textiles and apparel. This business
is just under 15% of sales, but is not very profitable.
Celanese's Perfromance Products segment includes food and nutrition
products, primarily Sunett brand artificial sweetener. This
business is just 4% of sales but has operating margins that are
above 25%. This business could be a candidate for divestiture
as it is profitable but not integrated with the company's other
operations. Segment operating profit has been adjusted to exclude
The ratings are supported by Celanese's relatively solid EBITDA margins
despite weak economic conditions. More specifically, the
company has consistently maintained 10% to 12% pro forma
EBITDA margins (adjusted for restructuring expenses) despite weak industrial
demand in key markets, over capacity in acetyls and volatile energy
prices. Moody's anticipates that operating margins should
trend higher in 2004 and 2005 due to increased demand and a tightening
supply/demand balance in VAM. However, Moody's notes that
although margins have been stable, cash flow has been volatile due
to restructuring expenses and pension payments. The reduction in
2003 cash flow is primarily due to a voluntary $136 million contribution
to the company's pension plans and 30 million of restructuring expenses.
As part of this transaction BCP will contribute an additional 380
million to the pension plan within the next six months. Moody's
believes that this contribution in 2004 will prevent the company from
having to provide additional contributions over the next two to three
years. Moody's expects that cash restructuring expenses will
remain in the 30-40 million range over the next two years.
The ratings also take into account Celanese's substantial pro forma leverage.
Adjusted for the transaction, the company would have total debt
of 2.15 billion (including PIK notes 2.3 billion),
which would have represented 0.6 times LTM revenues of 3.95
billion. LTM debt to EBITDA of 5.0 times (5.3 times
including PIK notes; pro forma LTM EBITDA of 430). Pro
forma free cash flow (cash from operations less capital expenditures)
to total debt was approximately 3.9% (3.6%
including PIK notes).
Adjusted for the transaction, Moody's views Celanese's liquidity
as good. The company will have pro forma cash of 125 million
(excluding the payments required for pensions and the buy-out of
minority shareholders) and revolving credit facility availability of 313
million. Furthermore, financial covenants in the bank agreement
appear to be set well below projected operating performance over the next
Celanese AG, headquartered in Germany, is a leading global
producer of acetyls, emulsions (including vinyl acetate monomer),
acetate tow and engineered thermoplastics. Celanese reported sales
of 4.1 billion in 2003.
BCP Caylux Holdings Luxembourg S.C.A. is the majority
owner of Celanese AG and a subsidiary of Blackstone Crystal Holdings Capital
Partners(Cayman) IV Ltd., an affiliate of The Blackstone
Corporate Finance Group
Moody's Investors Service
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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