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Rating Action:

Moody's assigned a Ba1 rating to Compass Minerals' new senior secured bank credit facilities; outlook moved to negative

21 Apr 2016

Approximately $700 million of debt securities affected

New York, April 21, 2016 -- Moody's Investors Service, ("Moody's") assigned a Ba1 rating to Compass Minerals International, Inc.'s new $700 million of senior secured bank credit facilities, which includes a $300 million revolving credit facility and a $400 million term loan A due July 1, 2021. The company plans to use the proceeds from the new issuance to refinance its existing $596 million in senior secured revolving credit facility and term loans. Moody's affirmed the company's Ba1 corporate family rating, Ba1-PD probability of default rating, and Ba2 rating on $250 million senior unsecured notes due July 2024. The speculative grade liquidity (SGL) rating was moved to SGL-3 from SGL-2 and the outlook was revised to negative largely on the expectation of lower profitability, following the mild 2015/2016 winter, and the potential for added leverage within 12 months, to fund the Produquímica put, during a period of elevated capex and negative free cash flow.

"We affirmed Compass Minerals' ratings as the new credit facility is largely leverage neutral and will improve financial flexibility due to the enlarged revolver and extended maturity," said Moody's analyst, Anastasija Johnson. "However, following the mild 2015-2016 winter, increased capital spending for expansions in 2016 and the possibility that the remaining 65% ownership of Produquímica could be put to Compass within the next 12 months elevates the risk that leverage could increase above expected levels for the Ba1 rating."

Moody's took the following actions:

Issuer: Compass Minerals International, Inc.

Ratings Assigned:

$300 million Senior Secured Revolving Credit Facility due July 2021, at Ba1 LGD 3

$400 million Senior Secured Term Loan due July 2021, at Ba1 LGD3

Ratings Affirmed:

Corporate Family Rating, at Ba1

Probability of Default Rating, at Ba1-PD

$250 million Senior Unsecured Notes due July 2024, at Ba2 LGD5

Outlook revised to negative from stable

Lowered Speculative Grade Liquidity Rating to SGL-3 from SGL-2

The ratings on the existing senior secured bank credit facility will be withdrawn upon the completion of the refinancing.

RATINGS RATIONALE

The Ba1 corporate family rating (CFR) reflects Compass Minerals' low leverage of 2.4x (Debt/EBITDA), strong Retained Cash Flow (22.1% RCF/Debt), and EBITDA margins over 30% for the past five years and over 38% for the FYE 2015. The rating also reflects Compass Minerals' secure access to high quality and low-cost salt deposits, and efficient distribution network that utilizes low-cost water transportation. The company is also the largest North American producer of sulfate of potash (SOP) fertilizer and benefits from its low-cost production of SOP from naturally occurring brines. The ratings are limited by Compass Minerals small scale as measured by net sales, net assets, as well as a narrow product portfolio that is significantly exposed to weather-driven demand volatility for rock salt. Compass Minerals' salt segment represents approximately 80% of net sales, while the plant nutrition fertilizer business contributes roughly 20%. The weather-dependent highway deicing business, which is a part of the salt segment, alone generates around 50% of the company's net sales. The warm winter of 2015/16 will likely put pressure on rock salt prices in the current contract season and volumes may decline further if the beginning of the 2016/17 winter is warm as well. Additionally, the rating reflects the mature and seasonal nature of the highway deicing business in the US, as well as the company's need to pursue capital projects or acquisitions in order to provide a more substantial increase in revenue and earnings growth.

Compass Minerals has adequate liquidity, as reflected by the SGL-3 rating. Pro forma for the proposed refinancing, the company will have $6 million of cash on hand and Moody's expects Compass Minerals to cover its basic cash obligations, including interest, dividends and maintenance capital expenditures from internally generated cash flows. However, in order to achieve its target EBITDA of $500 million by 2018, Compass Minerals' expansion plans in both the salt and SOP segments will elevate capital spending in 2016 to $175-$190 million. While the company has scaled back its multi-year capex program, lower by about $100 million from initial projections, capital expenditures will remain elevated through 2017 for the completion of cost saving and expansion projects. The growth capital spending will result in negative free cash flow in 2016 and Moody's expects the company to draw on its proposed $300 million revolver to support the expansion project spending. Moody's also expects the company to use its revolver for working capital needs as the highway deicing salt business is seasonal, with most sales and cash receipts occurring during the winter months.

The company also has a potential obligation tied to its December 2015 acquisition of an equity stake in Brazil based Produquímica Industria e Comercio S.A. If the majority shareholders exercise their put option in October 2016, Compass Minerals would need to fund the acquisition of the remaining 65% of Produquímica's equity-- roughly $250 million- by early 2017. In this event, leverage could rise to the 3.5x range. Moody's expectations for lower salt profitability, along with elevated capital spending through 2017 could slow the company's ability to reduce leverage and return metrics to levels that would fully support the Ba1 rating.

The proposed first-lien senior secured credit facilities, the $300 million revolver and the $400 million term loan due in July 2021, are rated Ba1, at the same level as the Ba1 CFR, reflecting their preferential position in the capital structure and the loss absorption cushion provided by the unsecured notes and other unsecured obligations. The $250 million senior unsecured notes due in July 2024 are rated Ba2, one notch below the Ba1 CFR, reflecting their subordinated ranking in the capital structure. The secured facilities are secured and guaranteed by all material subsidiaries in the United States, Canada, and the UK.

The negative outlook reflects the mild 2015/2016 winter season, that portends weaker 2016 earnings, as well as the possibility that the put option for Produquímica could be exercised by the majority shareholders in October 2016. A 2016 exercise of the put option could elevate Compass Mineral's leverage ratio near 3.5x by early 2017 and may reduce the company's liquidity. (If the put option is exercised, Compass Minerals will also assume Produquímica's existing debt of approximately $100 million (denominated in Brazilian Reals).)

There is little upward pressure on the rating due to the mild winter 2015/2016 season and potential for added leverage to fund the Produquímica acquisition. Additionally, Compass Minerals' business profile, modest size, and secured capital structure limit its long-term rating to the high-end of the Ba-rating category. Furthermore, to be considered for an investment-grade rating, Moody's would expect the company to exhibit an investment-grade capital structure, comprised only of unsecured debt with extended maturities; and publicly commit to maintaining investment-grade financial policies.

Moody's could consider a lower rating if the company's leverage rises, and is expected to remain, above 3.5x, and its EBITDA margin falls sustainably to around 20%. Pressure for a downgrade could result if the Produquímica put option is exercised and if Moody's expects leverage would remain above 3.5x for at least two years; the aforementioned metrics are on a Moody's-adjusted basis.

The principal methodology used in this rating was Global Chemical Industry Rating Methodology published in December 2013. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Kansas, US, Compass Minerals International, Inc. (Compass Minerals) is a leading North American producer of salt used for highway deicing, agriculture applications, water conditioning, and other consumer and industrial uses. The company is also a significant producer of SOP used on specialty crops, such as fruits and nuts, in the US and Canada. For the twelve months ended December 2015, Compass Minerals generated net sales (gross revenues after shipping and handling) and a Moody's-adjusted EBITDA of $837 million and $322 million, respectively.

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.

Anastasija Johnson
Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Brian Oak
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigned a Ba1 rating to Compass Minerals' new senior secured bank credit facilities; outlook moved to negative
No Related Data.
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