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Rating Action:

Moody's assigns A2 ratings to Air Products' proposed notes

27 Apr 2020

New York, April 27, 2020 -- Moody's Investors Service, ("Moody's") assigned A2 ratings to Air Products and Chemicals, Inc. ("Air Products") proposed senior notes. The notes will be denominated in dollars and Euros. Proceeds will be used for general corporate purposes, including retiring just over $1 billion of debt and funding a planned $2.5 billion equity investment in a joint venture in Saudi Arabia . The rating outlook is stable.

"Air Products will have substantial dry powder to take advantage of capital deployment opportunities following the completion of the proposed offering," said Ben Nelson, Moody's Vice President -- Senior Credit Officer and lead analyst for Air Products and Chemicals, Inc.

Assignments:

..Issuer: Air Products and Chemicals, Inc.

....Senior Unsecured Regular Bond/Debenture, Assigned A2

RATINGS RATIONALE

Air Products' A2 ratings are supported by the company's size and scale, strong profitability, relatively stable cash flow generation through economic cycles compared to most rated chemical and industrial companies. Key credit metrics are very strong for the rating category, including adjusted financial leverage around 1 times (Debt/EBITDA) and retained cash flow-to-debt of nearly 50% (RCF/Debt) for the twelve months ended 31 March 2020. The company reported $3.3 billion of debt and $2.2 billion of cash at 31 March 2020. The proposed offering will give the company a substantial cash position. Key credit metrics will remain appropriate for the rating when calculated using gross debt (low-to-mid 2.0x Debt/EBITDA) and very strong for the rating when calculated using net debt without consideration for additional earnings and cash flow. However, Moody's expects that capital will be deployed toward assets that generate additional earnings and cash flow. While the company has maintained very strong credit metrics for the rating over the past few years, the rating is tempered by an expectation for significant capital deployment within management's public commitment to maintain an A2 rating.

Moody's expects that Air Products will remain resilient despite an unprecedented shock to the global economy driven by the global coronavirus outbreak. Several key characteristics of the company's business model underpin this view, including: (i) meaningful revenues from on-site business protected by take-or-pay contracts; (ii) significant scale and geographic diversity that limits the impact of scenarios involving more extreme negative economic impact on a localized basis; and (iii) end market diversity, including certain end markets that should hold up better than the industrial economy. Our view also incorporates the company's excellent liquidity position, including about $4.5 billion of available liquidity (including an undrawn $2.3 billion revolving credit facility) at 31 March 2020 and very modest upcoming debt maturities.

Environmental, social, and governance factors influence Air Products' credit quality. The company is exposed to ESG-related issues typical for a company in the industrial gas industry. Industrial gas firms have lower direct environmental risks related to manufacturing processes compared to other specialty chemical companies. However, some customer end markets carry higher risks, and, in some cases, industrial gas firms' assets are integrated into these facilities. End markets with higher environmental and social risks include commodity and specialty chemicals, metals, refining, and steel. Governance-related risk is below average based on the company's publicly-traded status and commitment to the current rating.

FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The stable outlook assumes that credit metrics will remain fully supportive of the rating. Moody's could upgrade the ratings with expectations for adjusted financial leverage to be sustained below 2.0x (Debt/EBITDA), retained cash flow-to-debt sustained above 35% (RCF/Debt), and a public commitment to a higher rating. Moody's could downgrade the rating with expectations for adjusted financial leverage sustained above 2.5x (Debt/EBITDA) or retained cash flow-to-debt sustained below 25% (RCF/Debt).

Headquartered in Allentown, Pennsylvania, Air Products and Chemicals, Inc. is the third-largest global supplier of industrial gases by reported revenue and most profitable by Moody's adjusted EBITDA margin. Air Products CEO, Seifi Ghasemi, was appointed in July 2014. Air Products generated roughly $9.0 billion of revenue for the twelve months ended 31 March 2020.

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.

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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

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.

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.

Benjamin Nelson
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

No Related Data.
© 2023 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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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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