New York, November 01, 2021 -- Moody's Investors Service ("Moody's") affirmed
AMG Advanced Metallurgical Group N.V.'s ("AMG")
B2 corporate family rating ("CFR") and B2-PD probability
of default rating ("PDR"). Moody's also assigned
a Ba3 rating to AMG's new revolving credit facility ("RCF")
maturing in 2026 and the new term loan B ("TLB") maturing
in 2028. Additionally, Moody's affirmed a B3 rating
of the Ohio Air Quality Development Authority 30-year tax-exempt
revenue bonds (State of Ohio Exempt Facilities Revenue Bonds) which are
guaranteed by AMG Advanced Metallurgical Group N.V.,
the parent company of AMG Vanadium LLC. Proceeds from the new RCF
and TLB will be used to refinance the existing revolver and TLB,
pay for the transaction fees and expenses and for working capital and
other general corporate purposes. The Speculative Grade Liquidity
Rating is maintained at SGL-2. The ratings outlook is changed
to positive from stable.
"The change in the outlook to positive from stable reflects Moody's expectations
that AMG's financial performance and credit metrics will strengthen
materially in 2022-2023 benefitting from the anticipated completion
of the Cambridge II and Spodumene 1+ projects, improving demand
for its products and the continuing recovery in the commercial aerospace
demand", says Botir Sharipov, the lead analyst for AMG.
Assignments:
..Issuer: AMG Advanced Metallurgical Group N.V.
....Senior Secured Term Loan B, Assigned
Ba3 (LGD2)
....Senior Secured Revolving Credit Facility,
Assigned Ba3 (LGD2)
Affirmations:
..Issuer: AMG Advanced Metallurgical Group N.V.
.... Corporate Family Rating, Affirmed
B2
.... Probability of Default Rating,
Affirmed B2-PD
..Issuer: Ohio Air Quality Development Authority
....Gtd Senior Unsecured Revenue Bonds,
Affirmed B3 (LGD5)
Outlook Actions:
..Issuer: AMG Advanced Metallurgical Group N.V.
....Outlook, Changed To Positive From
Stable
RATINGS RATIONALE
AMG's B2 credit rating reflects its currently still high but improving
financial leverage, good liquidity, broad geographic and end
market diversity. The company has a strong market position with
only a few major competitors for most of its critical materials and sells
those materials to a number of blue-chip customers with whom it
has established long- term relationships. The importance
of its products in lightweighting, energy efficiency and carbon
emissions reduction should provide for a relatively steady customer demand
over the longer term. The rating is also supported Moody's expectations
that AMG will preserve its good liquidity position throughout its current
growth phase. AMG's rating is constrained by its modest scale versus
higher rated manufacturers, increasing exposure to ferrovanadium,
high capex and expectations of negative free cash flow in 2022-2023.
The company will continue to benefit from the agreement with Glencore
for the sale of the FeV from both Cambridge I and II plants that effectively
removes the market volume risk and reduces its exposure to the FeV price
volatility.
Moody's estimates that AMG will generate about $110 million in
Moody's-adjusted EBITDA in 2021 and that leverage will improve
to about 9.0x this year, benefitting from the implemented
cost reductions, higher prices for most of the products it manufacturers
and better end-market demand. Moody's expects that 2022
EBITDA will be in the range of $125-145 million and for
2023 Moody's-adjusted EBITDA to approach $180 million,
which will reduce the leverage to about 5x by 2023 year-end.
AMG is expected to begin generate positive free cash flow in 2024 after
the company completes the construction of the Cambridge II project in
the U.S (Q1 2022), Spodumene 1+ project in Brazil (2023)
and the battery grade hydroxide plant in Germany (2023).
The positive outlook reflects Moody's view that a favorable demand
environment, completion of growth projects and the continuing recovery
in the commercial aerospace sector will lead to a material growth in AMG's
revenues and EBITDA in 2022-2023 and result in improved credit
metrics. The positive outlook also presumes that AMG will carefully
manage its liquidity and the company will not experience any significant
issues related to its growth projects.
AMG overall faces elevated environmental social and governance risks given
the nature of the company's operations which include mining and high heat
metallurgical processes and the location of some of its mines and facilities
in emerging markets such as China and Brazil. The governance risk
is also above average due to the management's high tolerance for elevated
leverage. However, the AMG's $120 million equity
issuance in April 2021 signifies the company's willingness to balance
the interests of both equity and credit stakeholders.
We expect AMG to maintain good liquidity in the next 12-18 months,
as reflected in the company's SGL-2 Speculative Grade Liquidity
rating. AMG will have no meaningful debt maturities prior to the
maturity date of the revolver in 2026 and the term loan B in 2028.
As of September 30, 2021, the company had $319 million
in cash and cash equivalents, $114 million in restricted
cash for the Cambridge II project and $170 million available under
its $200 million revolver, which is undrawn but has a reduced
borrowing capacity due to the outstanding debt at the Brazilian subsidiary.
Moody's expects the revolving facility to remain undrawn over the rating
horizon. Moody's also expects the company to have ample headroom
under its 3.5x first lien leverage covenant.
The Ba3 rating of the new senior secured revolving credit facility and
senior secured term loan B reflects their priority position in the company's
capital structure, strong liquidity position and pre-funded
nature of the growth projects. The credit facilities are secured
by a first priority lien on substantially all of the assets of several
of the company's operating subsidiaries and a first priority lien
on 100% of the capital stock (limited to 65% of voting stock
for foreign subsidiaries) of each subsidiary borrower and each material
wholly-owned subsidiary. However, the security package
excludes the assets of a number of key foreign subsidiaries that account
for about 50-60% of the overall assets of the company.
The B3 rating of the tax-exempt unsecured bonds reflects a relatively
high proportion of secured debt and the bonds' effective subordination
to the secured debt. The bonds are issued by the Ohio Air Quality
Development Authority and guaranteed by AMG Advanced Metallurgical Group
N.V.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings upgrade could be considered if the company successfully completes
and ramps up the Cambridge II project, and achieves a material improvement
in its operating and financial results in 2022-2023. Quantitatively,
the ratings could be upgraded if the company is expected to reduce and
sustain a leverage ratio below 5.0x, an interest coverage
ratio above 2.0x and return to free cash flow generation over the
following 12-18 months. However, AMG's moderate scale
will limit its upside ratings potential.
Negative rating pressure could develop if the company experiences any
significant issues related to its growth projects. Any material
operating disruptions, weaker than expected financial and operating
performance, or the pursuit of other debt financed growth projects
that result in further deterioration of debt protection metrics would
negatively impact the company's rating. Quantitatively, the
ratings could be downgraded if the leverage is expected to be sustained
above 6.0x or the interest coverage ratio sustained below 1.5x.
A significant reduction in borrowing availability or liquidity could also
result in a downgrade.
Advanced Metallurgical Group N.V., headquartered in
Wayne, Pennsylvania, operates through three divisions -
Clean Energy Materials, Critical Materials Technologies, and
Critical Minerals. The Clean Energy Materials segment produces
materials used in energy storage products such as electric vehicle batteries,
grid stabilization batteries and semiconductor capacitors. Its
Critical Materials Technologies segment designs and produces vacuum furnace
equipment and systems, titanium alloys and coatings as well as chrome
metal for aerospace, renewable energy and other industrial end-markets.
The Critical Minerals segment produces specialty metals and chemicals
and other products used in infrastructure, automotive and other
industrial applications. The company sells its products to the
transportation, infrastructure, energy, and specialty
metals & chemicals end markets from production facilities in Germany,
the United Kingdom, France, United States, China,
Mexico, Brazil and India. The company produced revenues of
about $1.1 billion for the twelve months ended September
30, 2021.
The principal methodology used in these ratings was Manufacturing published
in September 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287885.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
by Moody's Investors Service Limited, One Canada Square,
Canary Wharf, London E14 5FA under the law applicable to credit
rating agencies in the UK. Further information on the UK endorsement
status and on the Moody's office that issued the credit rating is
available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Botir Sharipov
VP-Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Glenn B. Eckert
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
