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Global Credit Research - 04 Nov 2010
Approximately $520 million of proposed new debt securities rated B1
New York, November 04, 2010 -- Moody's Investors Service assigned ratings to Arizona Chemicals Holdings
Corporation (ACHC), a specialty chemical manufacturer (see list
of proposed ratings below), for its recapitalization in connection
with American Securities LLC's (AmSec) definitive agreement to acquire
ACHC from Rhône Capital LLC's (Rhône). The total transaction
consideration is estimated to be just over $790 million including
fees and expenses. The acquisition is expected to be financed with
aggregate proceeds of $470 million from a first lien term loan
facility issued by AZ Chem US Inc. an indirect subsidiary of ACHC,
and about $320 million of an equity contribution consisting of
approximately $240 million in cash from AmSec and approximately
$80 million of rollover equity from remaining owners. The
existing ratings for AZ Chem Sweden Holdings AB and the ratings for its
subsidiaries were raised one notch (see list below). The rating
outlooks are stable.
Moody's assigned the following ratings to:
Arizona Chemicals Holdings Corporation
Corporate family rating, B1
Probability of default rating, B1
AZ Chem US Inc. (New)
$50 million Senior Sec Revolver due 2015, B1 (LGD 3,
$470 million 1st lien Senior Secured Term Loan due 2016,
B1 (LGD 3, 47%)
Ratings raised and to be withdrawn at closing
AZ Chem Sweden Holdings AB
Corporate family rating, to B1 from B2
Probability of default rating, to B1 from B2
AZ Chem US Inc.
$50 million guaranteed First Lien Revolving Credit Facility due
2012, to Ba3 LGD 3, 32% from B1 (LGD 3, 33%)
$140 million First Lien Term Loan due 2013, to Ba3 LGD 3,
32% from B1 (LGD 3, 33%)
$136 million Second Lien Term Loan due 2014, to B3 LGD 5,
76% from Caa1 (LGD 5, 79%)
AZ Chem Sweden AB
$100 million equivalent Euro First Lien Term Loan due 2013,
to Ba3 LGD 3, 32% from B1 (LGD 3, 33%)
The ratings are subject to the review of executed documents.
The B1 corporate family rating assigned to ACHC is constrained by weak
pro forma credit metrics. On a pro forma basis Moody's expects
at December 31, 2011, debt to EBITDA (excluding non-recurring
items and reflecting Moody's standard analytical adjustments) will approach
3.9 times and EBITDA to Interest will be about 3.7 times.
Moody's expects pro forma free cash flow to debt of about 9% in
the fiscal year ending December 31, 2011.
Other factors constraining the ratings include (1) the small revenue base
of Arizona and reliance on a single primary business - crude tall
oil based products, (2) difficult operating performance in 2008
due in part to unusual one-time items, and (3) the narrow
financial disclosure, going forward, provided by an issuer
with non-SEC filings. An additional concern is the desire
to see a longer track record of sustainable margin improvement.
Margins have improved markedly due to cost cutting initiatives,
customer mix improvements, and currently favorable market conditions
in competitive chemistries. Often margins can be pressured as competitors
and customers react to higher price points which may result in the need
to share productivity gains to maintain volumes.
The key factors supporting the B1 corporate family rating are the company's
market positions, geographic diversification, and long-lived
customer and supplier relationships. In addition, the ratings
are further aided by high barriers to entry, adequate operating
margins and a strong relationship with International Paper - a
key raw material provider. The stable ratings outlook anticipates
modest overall revenue growth and relative operating margin stability
driven primarily by productivity initiatives and the benefits of cost
The stable outlook reflects Moody's expectation that ACHC will generate
modest amounts of free cash flow over the next two years and be unable
to meaningfully reduce leverage. However, the outlook also
assumes that ACHC will be able to maintain shares in key end-markets
and successfully avoid any material margin erosion. The rating
currently has limited upside due to the high leverage from the recapitalization.
An upward revision to the rating could be considered once the company
develops a successful track record of margin stability over 4-8
quarters and demonstrates improved credit metrics. The rating could
be pressured if EBITDA margins were to fall below 8% and free cash
flow too debt were to fall below 4%
Headquartered in Jacksonville - Florida, AZ Chem US Inc.
is a global leader in the production and sales of pine based specialty
chemicals. Estimated revenue for the LTM period ended September
30, 2010 was over $846 million.
The principal methodologies used in rating AZ Chem US Inc were Global
Chemical Industry published in December 2009, and Loss Given Default
for Speculative-Grade Non-Financial Companies in the U.S.,
Canada and EMEA published in June 2009.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
MOODY'S adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
MOODY'S considers to be reliable including, when appropriate,
independent third-party sources. However, MOODY'S
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
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used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns Arizona Chemicals Holdings Corporation a B1 CFR
250 Greenwich Street
New York, NY 10007
No Related Data.
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