MOODY’S PLACES LUBRIZOL (SR. UNSECURED AT A2) UNDER REVIEW FOR DOWNGRADE AND NOVEON UNDER REVIEW FOR UPGRADE (SR. IMPLIED AT B1).
New York, April 16, 2004 -- Moody’s Investors Service has placed the A2 senior unsecured debt ratings and Prime-1 commercial paper rating of the Lubrizol Corporation under review for possible downgrade following the announcement today that they have signed a definitive agreement to acquire Noveon International Inc. (the parent of Noveon Inc.) for roughly $1.84 billion. Moody’s also placed the ratings of Noveon Inc. under review for possible upgrade.
Ratings under review for possible downgrade:
Lubrizol Corporation – senior unsecured notes and debentures at A2, rating for commercial paper at Prime-1; industrial revenue bonds at A2/Prime-1.
Ratings under review for possible upgrade:
Noveon Inc. – senior secured revolving credit facility and term loans at B1, senior implied at B1, issuer rating at B2, senior subordinated notes at B3.
The ratings of Lubrizol have been placed under review for possible downgrade due to the substantial increase in debt required to fund the Noveon acquisition. Even with $400 million of equity financing as described by Lubrizol’s management, debt at the combined company, subsequent to the transaction, would be over $2 billion. The combined company will also have a substantial cash balance of approximately $250 million. This transaction will result in a significant deterioration in Lubrizol’s credit metrics. Hence, the company’s ratings are likely to be lowered by at least 3 notches, if this transaction is completed as currently planned.
The ratings of Noveon Inc. have been place under review for possible upgrade as debt holders will likely benefit from the combined company’s financial profile. While the terms loans are likely to be repaid as a result of this transaction, it is uncertain whether the subordinated notes will remain outstanding. The first call date on the subordinated notes is in March of 2006.
The review will focus on the details of the financing for the transaction, the potential synergies between the businesses, the combined company’s financial flexibility and liquidity, the ability to utilize the substantial cash balances at both companies to quickly reduce debt, and Lubrizol’s capacity to utilize Noveon’s net operating loss carryforwards and tax credits of over $250 million. Specific emphasis will be placed on the combined company’s ability to generate free cash flow and the likely pace of debt reduction subsequent to the transaction.
This transaction is subject to further due diligence by Lubrizol and regulatory review. Lubrizol expects to complete the transaction within the next three months.
The Lubrizol Corporation, headquartered in Wickliffe, OH, is a leader in the worldwide market for additives used in gasoline and transportation lubricants, including engine oils, automatic transmission fluids and gear oils. Lubrizol also manufactures industrial lubricants and additives that enhance the properties of coatings, inks and personal care products. Lubrizol reported $2.0 billion in sales for fiscal 2003.
Noveon, Inc., headquartered in Cleveland, Ohio, is a global producer of specialty polymers, polymer-based formulations and chemical additives for consumer and industrial applications. Its revenues were $1.1 billion in 2003.
Corporate Finance Group
Moody's Investors Service
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
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