London, 19 October 2020 -- Moody's Investors Service ("Moody's") today affirmed
Ineos Group Holdings S.A. (INEOS) corporate family rating
(CFR) at Ba3 and probability of default rating (PDR) at Ba3-PD.
Concurrently, Moody's affirmed the ratings of Ineos US Finance LLC's
and Ineos Finance plc's senior secured term loan facilities due March
2024 and Ineos Finance plc's senior secured notes due November 2025 and
May 2026 at Ba2, together with the €700 million add-on
debt consisting of senior secured term loan and other secured debt currently
being marketed. Further, Moody's affirmed the B2 ratings
on INEOS' senior unsecured notes due 2024. The rating outlook
on all three entities remains negative.
RATINGS RATIONALE
Today's action reflects Moody's expectations that INEOS's
large and diversified business with many leading market positions will
gradually recover in 2021-2022 following the weak, bottom-of-the-cycle
performance in 2020 in the wake of coronavirus and the broad-based
reduction in demand for its largely commoditized product offerings.
Moody's also expects that INEOS's currently highly elevated
leverage (projected to be over 6.0x in 2020) will reduce over time
closer to its historical levels. The agency also notes that INEOS's
expected dividend of up to €300 million to be paid in 2021 from the
proceeds of the current offering is a credit negative, and this,
together with the high leverage, leaves the company little cushion
within the rating category.
INEOS experienced a 22% decline in revenues and a 48% reduction
in EBITDA in the first half of 2020 as a result of the demand retrenchment
in the wake of coronavirus primarily on the back of decreases in prices
of its goods. Although INEOS saw good demand for certain food and
packaging applications, it was offset by underperformance in other
verticals, such as construction and autos. The company's
leverage measured as debt/EBITDA increased to 5.9x for the twelve
months ended 30 June 2020 from 4.6x in 2019 and Moody's anticipates
its leverage to rise above 6.0x in 2020, in excess of the
agency's previous expectations, before reducing in 2021.
Despite increased leverage, the company's operations are highly
cash generative and are expected to produce over €1 billion in funds
from operations in each of the next three years. Still, owing
to INEOS' large capital commitments (although reduced in the wake
of coronavirus), its cash flow before dividends in 2020 and 2021
is expected to be neutral. While the anticipated dividend payout
of up to €300 million in 2021 is not very large relative to the size
of the company, it will push INEOS's free cash flow in that
year into the negative territory. Moody's views this distribution
as a sign of a continuing aggressive financial policy particularly following
a dividend of over €2 billion paid by INEOS in 2019.
INEOS' ratings continue to be underpinned by the company's
robust business profile, reflecting its (1) leading market position
as one of the world's largest chemical groups across a number of key commodity
chemicals; (2) vertically integrated business model, which
ensures that the company can capture margins across the whole value chain
and benefit from economies of scale; and (3) well-invested
production facilities, with most of them ranking in the first or
second quartile on the regional industry cost curve. The rating
also reflects the cyclicality of commodity chemical markets and the group's
exposure to volatile raw material prices.
LIQUIDITY
INEOS's liquidity position is adequate. At 30 June 2020,
the group held cash balances of approximately €927 million.
In addition, it has currently around €125 million available
under its €800 million receivables securitisation facility,
which matures in December 2022. The company does not have other
bank facilities such as an RCF in place. Furthermore, Moody's
expects that management's actions to conserve cash, lower tax payments
and a working capital inflow from lower feedstock prices will further
shore up INEOS' liquidity, along with the portion of the proceeds
of the add-on offering slated to be retained by the company.
STRUCTURAL CONSIDERATIONS
Applying our Loss Given Default for Speculative-Grade Companies
rating methodology (assuming a standard 50% recovery rate),
the group's outstanding rated debt instruments fall into two main categories:
(1) senior secured term loans due 2024 and senior secured notes due in
2025 and 2026 which are rated Ba2, one notch above the Ba3 CFR because
of their ranking priority; and (2) unsecured notes due in 2024 which
are rated B2, two notches below the Ba3 CFR, reflecting their
subordinated ranking in the capital structure.
RATING OUTLOOK
The negative outlook reflects our expectation that significant pressure
on operating profitability will leave INEOS's leverage metrics weakly
positioned at year-end 2020 relative to our guidance for the Ba3
rating, including Moody's-adjusted total debt to EBITDA
not exceeding 5.0x.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
While unlikely at this juncture, positive pressure on the rating
may arise over time if (i) retained cash flow to debt is consistently
above 20%; (ii) Moody's-adjusted total debt to EBITDA
is sustained below 4x; and (iii) INEOS maintains good liquidity and
adopts a more consistently conservative financial policy.
Conversely, the ratings could come under downward pressure if (i)
cyclical recovery fails to materialize in 2021; (ii) Moody's-adjusted
total debt to EBITDA keeps over 5x and retained cash flow to debt below
15% for a prolonged period of time; (iii) the group's liquidity
profile weakens; or (iv) INEOS chooses to make any further dividend
distributions while its leverage levels are elevated.
PRINCIPAL METHODOLOGY
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.
Ineos Group Holdings S.A. was established in 1998 via a
management buy-out of the former BP petrochemicals asset in Antwerp,
which was led by Mr. Ratcliffe, chairman of Ineos Group Holdings
S.A. The group has subsequently grown through a series of
acquisitions and at the end of 2005 acquired Innovene Inc.,
a 100% subsidiary of BP, in a $9 billion buy-out,
transforming INEOS into one of the world's largest chemical companies
(measured by turnover). In 2019, INEOS reported consolidated
revenues of €13.7 billion and EBITDA before exceptionals of
€1.9 billion.
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.
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Maria Maslovsky
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
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Peter Firth
Associate Managing Director
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