New York, February 09, 2022 -- Moody's Investors Service ("Moody's") affirmed
Ba3 corporate family rating and Ba3-PD probability of default rating
of Albaugh, LLC ("Albaugh"). Moody's also
affirmed existing instrument ratings and assigned Ba3 ratings to the proposed
$950 million senior secured credit facilities, including
$200 million five-year revolver and $750 million
seven-year senior secured term loan B. The proceeds of the
term loan issuance will be used to acquire Hong Kong-based Rotam
Global AgroSciences Limited (Rotam) for the enterprise value of $403
million, to refinance Albaugh's and Rotam's existing debt and to
pay associated fees and expenses. The acquisition, which
is subject to regulatory approvals, is expected to close in the
second quarter of 2022. The ratings outlook is stable. Moody's
will withdraw the ratings on Albaugh's existing debt after the new financing
closes and the debt is repaid.
"Rotam transaction will help Albaugh improve its product and geographic
diversity, reducing its dependence on glyphosate, while maintaining
fairly strong credit metrics," said Anastasija Johnson,
VP-Senior Credit Officer at Moody's.
Affirmations:
..Issuer: Albaugh, LLC
.... Corporate Family Rating, Affirmed
Ba3
.... Probability of Default Rating,
Affirmed Ba3-PD
.... Senior Secured Bank Credit Facility,
Affirmed Ba3 (LGD3)
Assignments:
..Issuer: Albaugh, LLC
....Senior Secured 1st Lien Term Loan B,
Assigned Ba3 (LGD3)
....Senior Secured 1st Lien Revolving Credit
Facility, Assigned Ba3 (LGD3)
Outlook Actions:
..Issuer: Albaugh, LLC
....Outlook, Remains Stable
RATINGS RATIONALE
The Ba3 corporate family rating reflects Albaugh's position as one
of the top 10 global crop protection producers with a growing new product
portfolio but high concentration in commodity herbicides, particularly
in glyphosate. As such, the company is constrained by exposure
to seasonal and weather-dependent swings in demand for agricultural
inputs, which is partially mitigated by the expanded geographic
footprint, broader portfolio and market segmentation approach.
The planned Rotam acquisition is credit positive as it increases scale
to $1.9 million from $1.6 million in the twelve
months ended September 2021, adds manufacturing facilities in China
and India and new markets in Central America, Europe, Middle
East, Africa and Asia as well as new product registrations.
In addition, the target generates two thirds of sales from fungicides
and insecticides and only about a quarter in herbicides, improving
but not fundamentally changing Albaugh's product portfolio.
Albaugh's concentration in commodity herbicides (roughly two-thirds
of sales pro forma for Rotam acquisition), specifically in glyphosate
(roughly one-third of pro forma sales), remains a constraining
factor for the rating. The rating is constrained by the company's
limited scale in a competitive industry and volatility in cash flows due
to working capital swings and foreign currency exposure. In addition,
Rotam's 9% EBITDA margins before synergies are lower than
Albaugh's current margins.
The rating benefits from the modestly levered balance sheet even pro forma
for Rotam acquisition. Moody's adjusted pro forma debt/EBITDA rises
to about 2.9x from 2.0x times in the twelve months ended
September 2021, not accounting for the projected $30 million
of synergies. If synergies are included, leverage is approximately
2.6x in the twelve months ended September 2021. The rating
benefits from the expectation of ongoing demand for agricultural inputs
given higher global commodity crop prices, but some pressure on
margins due to higher raw material costs.
The rating incorporates expectations that the company will continue to
expand its growth portfolio (currently about one-third of sales)
either through new product registrations or acquisitions. Moody's
views high concentration in glyphosate as a long-term business
risk, mitigated by the current lack of the low-cost,
broad-spectrum alternative herbicides.
As an agricultural chemicals manufacturer, Albaugh faces high credit
risks related to environmental and social factors, primarily related
to its glyphosate products. Albaugh sells the vast majority of
its glyphosate to wholesalers and does not market a glyphosate-based
product directly to consumers, which somewhat reduces litigation
risks. The use of glyphosate is currently allowed in the US and
Europe, however, local jurisdictions in both countries have
taken decisions to phase out the use of glyphosate, mostly for usage
in turf and ornamental applications. Alabaugh curently does not
offer glyphosate in its turf and ornametal segment. Given the negative
publicity around glyphosate, Moody's sees a potential risk that
regulators such as the European Union might revoke its licenses.
The EU registration is up for renewal in 2022. Albaugh's glyphosate
exposure to Europe is relativel relatively small (under 1%),
with the majority of sales coming from the US.
Governance considerations include concentrated ownership. Albaugh
is a private company, majority owned by its founder Dennis Albaugh
with a 20% stake owned by the Chinese agrochemical developer and
manufacturer and Albaugh's supplier, Nutrichem. Current owners
and management have maintained modest financial leverage and we expect
this to continue, but we would expect to see continued growth in
distributions over time especially if there are no acquisitions.
Albaugh is expected to have good liquidity. The company had $261
million of cash on hand as of September 2021, some of which will
be used to finance the acquisition. The company expects to have
full availability under its new $200 million five-year revolver.
With the new capital structure in place to finance Rotam deal, there
are no significant near-term maturities and amortization on the
term loan is $7.5 million a year. The term loan has
no financial maintenance covenants, but the revolver has a total
net leverage covenant of 4.25 times. The company has sufficient
headroom under the covenant and is expected to remain in compliance over
the next 12 months. The credit facility allows for increased dividend
distribution for up to the greater of $30 million or 10%
of EBITDA. The credit facilities are secured by most of the assets,
excluding the Argentina and China plants, providing limited additional
liquidity.
Albaugh's debt capital structure is comprised of a $200 million
first-lien senior secured revolving due in 2027 and a $750
million first lien senior secured term loan B due 2029, which are
both rated Ba3 at the same level as the CFR. The rating on the
secured facilities reflects one notch override to bring the rating level
in line with the CFR since the new credit facilities represent the majority
of debt in the capital structure apart from mostly unsecured local credit
facilities and trade payables. In addition, the business
is relatively asset-light. The revolver and the term loan
are secured by the first priority lien on the US, Mexican and Brazilian
assets and Rotam's IP, excluding the Argentine and Chinese
plants. The guarantors represent 65% of sales and assets.
As proposed, the new credit facilities are expected to provide covenant
flexibility that if utilized could negatively impact creditors.
The credit agreement allows for incremental debt capacity up to the greater
of $300 million or 100% EBITDA plus unlimited amounts subject
to 3.0x first lien net leverage ratio, plus unlimited of
junior secured debt subject to the secured net leverage of 4x, plus
unlimited unsecured amount subject to total net leverage ratio of 4.0x.
Amounts up to $300 million or 100% EBITDA may be incurred
with an earlier maturity date than the initial term loans.
The credit agreement permits the transfer of assets to unrestricted subsidiaries,
up to the carve-out capacities, subject to blocker provisions
which prohibit contribution or transfer (including by exclusive license)
any intellectual property that is material to the business of the borrower
and its restricted subsidiaries, taken as a whole, to any
unrestricted subsidiary. In addition, no unrestricted subsidiary
is permitted to own or have an exclusive right to use any such intellectual
property.
Non-wholly owned subsidiaries are not required to provide guarantees
under the credit agreement. Dividends or transfers resulting in
partial ownership of subsidiary guarantors could jeopardize guarantees,
with no explicit protective provisions limiting such guarantee release.
The credit agreement provides some limitations on up-tiering transactions,
including effectuate any payment subordination with respect to the Obligations
or (ii) subordinate the Liens on the Collateral securing the Obligations,
in each case, to any Indebtedness for borrowed money, without
the written consent of each Lender directly and adversely affected thereby.
The above are proposed terms and the final terms of the credit agreement
may be materially different.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The stable outlook reflects our expectations the company will successfully
integrate Rotam, execute its synergies plan and continue to benefit
from strong demand for agricultural input given higher global commodity
crop prices.
Moody's could upgrade the rating if the company increases its revenues
sustainably above $2.5 billion and reduces reliance on core
commodity glyphosate to less than 25%. Moody's could also
upgrade the ratings if the company generates positive free cash flow on
a more consistent basis, while maintaining adjusted leverage below
3 times and RCF/Debt above 20%.
Moodys' could downgrade the rating if the there is a significant deterioration
in the company's operating conditions, if the company increases
its leverage above 4 times on a sustained basis and retained cash flow
to debt declines to 10%.
The principal methodology used in these ratings was Chemical Industry
published in March 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1152388.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Headquartered in Ankeny, Iowa, Albaugh, LLC is a global
manufacturer and seller of agricultural chemicals. The company
is majority owned by founder Dennis Albaugh with a 20% stake owned
by the Chinese agrochemicals developer and manufacturer and Albaugh's
supplier, Nutrichem.
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.
Anastasija Johnson
VP - Senior Credit Officer
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
