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Rating Action:

Moody's affirms LBC's B1 CFR and B3 bond ratings; stable outlook

25 Mar 2019

Frankfurt am Main, March 25, 2019 -- Moody's Investors Service ("Moody's") has today affirmed the B1 corporate family rating (CFR) and B1-PD probability of default rating (PDR) of LBC Tank Terminals Holding Netherlands BV ("LBC"), the holding company of LBC Tank Terminals group. Concurrently, Moody's has affirmed the B3 rating of the $350 million senior unsecured notes due 2023. The outlook remains stable.

Today's rating action incorporates the proposed amendment of the existing senior secured facilities of which around $250 million equivalent were outstanding by the end of December 2018. The proposed amendment would result in (i) an extension of their tenor to May 2022 from May 2020, including a margin reset, (ii) an increase of the senior secured CAPEX facility by $100 million to around $200 million and Moody's expectation that the proceeds will be used to partially fund the ongoing expansion plan, as well as (iii) the corresponding amendment of the senior secured facilities covenants.

RATINGS RATIONALE

LBC's B1 CFR takes into account that the envisaged transaction will lead to an additional $100 million debt to be drawn under the upsized $200 million CAPEX facility, which will be used to partially finance LBC's sizeable expansion plan. This facility ranks structurally and contractually ahead of the $350 million senior unsecured notes due in 2023. The increased debt will result in a leverage not declining materially below Moody's adjusted debt/EBITDA of 6.5x until December 2020 from currently 7.4x. The higher than previously anticipated leverage is partially mitigated by our understanding that the shareholders will continue to inject equity in order to partially fund the expansion plan (the owners injected c. $230 million of equity over the past 5 years), and the fact that most of the tank capacity under construction is already contracted by blue chip customers with long term contracts.

The B1 CFR acknowledges (1) the resilient nature of LBC's business model throughout the cycle, with an average terminal utilisation rate of 90% during the past three years and more than 90% of revenues supported by fixed or evergreen contracts on a take-or-pay basis; (2) LBC's high and stable operating profitability, with an EBITDA margin of c. 46% for the past three years; (3) the company's established global network of terminals in strategic locations, with supporting infrastructure providing high barriers to entry; (4) no direct commodity price risk, as LBC only rents storage capacity; and (5) longstanding customer relationships, with net churn levels around 1% for the past three years in both Europe and the US.

The rating remains constrained by (1) the company's high adjusted gross leverage of 7.4x (last-twelve-months to December 2018), which Moody's expects to decline towards 6.5x by end of June 2019; (2) LBC's limited size compared to some of its direct competitors (Vopak, unrated, the largest independent tank storage provider, reported EUR 1.3 billion of revenues in FY 2018); (3) its negative free cash flow generation expected to continue until end of June 2021 due to the company's multi-year expansion plan; (4) moderate construction and execution risks in connection with the brownfield expansion of storage and dock capacity in Houston (with about half of the added capacity under a 50/50 joint venture with Magellan Midstream Partners LP (Baa1 stable)), Antwerp and Rotterdam; and (5) the uncertainty concerning the utilisation rate of the new uncontracted tanks once online, particularly in Rotterdam.

STRUCTURAL CONSIDERATIONS

Following the successful closure of the transaction, LBC's debt will comprise around $200 million senior secured term loan facility (split between $ and EUR) maturing in May 2022 and $350 million of senior unsecured notes maturing in 2023. LBC will also have an undrawn $25 million senior secured RCF and a $200 million secured capex facility, both maturing in 2020.

The B1-PD PDR, in line with the CFR, assumes a recovery rate of 50%, common for a structure consisting of secured bank debt and unsecured notes. The B3 rating on the senior unsecured notes issued by LBC Tank Terminals Holding Netherlands BV reflects the presence of up to $425 million of senior secured debt ranking ahead of the notes

OUTLOOK

The stable outlook reflects Moody's expectation that the diversified portfolio of storage contracts will be renewed on a regular basis and will continue generating stable cash flows, as these cash flows are derived from contracts with long-standing blue chip customers. The outlook also assumes that a significant portion of the ongoing capex plan is equity-funded by the existing shareholders and that liquidity will remain good over the entire business plan period.

WHAT COULD CHANGE THE RATING UP / DOWN

Upward rating pressure could develop on the back of the successful execution of the expansion plan with Moody's adjusted debt/EBITDA approaching 5.5x, while adj. EBITDA/Interest Expense reaching 3.0x.

The ratings could be downgraded if LBC's Moody's adjusted debt/EBITDA remains elevated sustainably exceeding 6.5x and / or EBITDA/Interest Expense declines to below 2.0x, indicative of project delays, underperforming assets, lost business or more aggressive than currently anticipated debt-funded growth. Weaker liquidity and materially lower headroom under the financial covenants could also exert negative rating pressure.

The principal methodology used in these ratings was Midstream Energy published in December 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

LBC Tank Terminals is an independent global operator of bulk liquid storage facilities predominantly for chemical but also oil products, with a capacity of 2.4 million m3 at key locations in Western Europe, including Antwerp, Rotterdam, as well as the US Gulf Coast. It is one of the top twenty largest independent operators of bulk liquid storage terminals and the second largest independent chemical storage company by capacity. The company reported Moody's adjusted revenues and EBITDA of $184 million and $86 million respectively for financial year 2018 (year-end June). Since September 2012 it has been majority owned by the two largest Dutch pension funds, PGGM and APG, that together hold a 65% stake.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Janko Lukac
Asst Vice President - Analyst
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Matthias Hellstern
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

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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