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Global Credit Research - 29 Sep 2010
Proposed $800 million new term loan rated B2
New York, September 29, 2010 -- Moody's Investors Service assigned a B2 Corporate Family Rating (CFR)
to Ascend Performance Materials Holdings, Inc. (APMH).
APMH is a major integrated Nylon 6,6 manufacturer and this is its
initial Moody's rating (see list of proposed ratings below).
The proposed debt, consists of a senior secured asset backed revolver
(ABL - unrated) and a secured term loan, with a dual purpose
of a $922 million dividend to the owners. Moody's
assigned a B2 rating to the proposed $800 million guaranteed secured
Term Loan B issued by Ascend Performance Materials LLC. The proposed
rating outlook is stable.
APMH is the former Integrated Nylon division of Solutia (Solutia's
CFR is B1- positive outlook). APMH was identified as a non-core
asset and in 2008; Solutia further classified the division as a discontinued
operation for sale. On June 1, 2009, SK Capital closed
the acquisition of this company with Solutia retaining a small equity
ownership position of about 2%. SK Capital Partners is a
sector-focused investment firm with industry and operating expertise
in Specialty Materials, Specialty Chemicals and Healthcare.
APMH has proposed new Credit Facilities including a $275 million,
4.5 year, senior secured ABL and an $800 million,
6-year, senior secured term loan. The proceeds of
which will be used to fund a $922 million distribution to APMH
shareholders and pay related fees and expenses. APMH's ratings
and outlook are subject to review of the final documentation of the financing
and closing of the transaction as described.
Ascend Performance Materials Holdings, Inc
Corporate Family Rating -- B2
Probability of Default Rating -- B2
Ascend Performance Materials LLC
$800 million Sr Sec Term Loan B due 2016 - --
B2 (LGD4, 55%)
APMH's B2 CFR is weakly positioned in the B2 category and reflects
significant debt leverage, a limited operating history as an independent
company, severely abbreviated audited historic financials,
the prospect of volatile raw materials in the event that current contracts
recently negotiated are not renewed on a sustainable basis, and
significant cash resources exiting the business in the form of a series
of one time dividends amounting to over $1 billion. The
proposed $922 million dividend contemplated by this new debt exceeds
the total assets reported at the end of June 2010 of $694 million
by 33% and is over 3X the book equity reported at the end of June
2010. Debt, when adjusted for our standard adjustments,
(including unfunded pensions of $80 million and capitalized rents
of $7 million at the end of 2009) is about $1,053
million. During 2010 the under funding of the pension has been
reduced. An additional concern is the prospect of reduced liquidity
under the ABL if a proposed incremental dividend of $120 million
is permitted in the 4th quarter of 2010. At this level of debt
Moody's proforma estimated leverage for 2010 would be about 3.7.
In 2010 APMH EBITDA has benefited from cost savings initiated by the former
owners consisting of a 33% reduction of the company's global
workforce. In addition management is likely to benefit from more
favorable contract terms over time as long as the main industry competitors
continue to operate at close to industry capacity. If the global
economy were to contract again contract terms might change upon renewal.
APMH's rating reflects the very difficult reported financial performance
in recent years notwithstanding several large unusual items that contributed
to the poor performance including $113 million of annual cost savings
from a 1,300 employee downsizing initiative and a $256 million
impact, over two years, from overvalued inventory caused by
high raw material prices combined with an unexpectedly large decrease
in demand. In addition, it is estimated that in 2010 APMH
will export 55% of its nylon 6,6 revenues to Europe and Asia.
Exports to Asia alone are estimated at 34% of 2010 nylon 6,6
revenues and will continue to increase as Asian growth is expected to
eclipse growth in the U.S. and Europe by a wide margin.
Moody's remains concerned that the company's cost position
may weaken over time due to the availability and pricing of key feedstocks
which may reduce its export margins.
AMPH's B2 CFR also takes into consideration the sponsor's publicly stated
focus on the ability to de-lever as well as the proposed limitation
on future dividends until at least 50% of the term loan has been
paid down and leverage drops to 2X.
The rating outlook for AMPH is stable. Factors that could have
negative rating implications include a failure to maintain historical
margins as raw material prices become volatile and deterioration in its
key end-market conditions. Factors that could have positive
rating implications include a substantial improvement in financial performance
and meaningful permanent debt reductions supported by a publicly stated
AMPH operates in three business segments. The largest segment,
with some 44% of revenues (for the LTM period ending June 30,
2010), is the chemical segment. This segment provides chemicals
for external and internal use. The next largest segment,
with some 29% of revenues is the engineered plastics segment followed
by the polymer and fiber segment with 27% of the revenues.
The B2 rating on the term loan B reflects its dominant position in the
company's debt structure, relative proximity to the operating assets
and benefits of the collateral package. The facility will be secured
by a first priority lien on the capital stock as well as all domestic
PP&E assets of the company and its subsidiaries, and will be
guaranteed on a senior secured basis by all current and future domestic
subsidiaries. AMPH is also expected to guarantee the credit facilities.
The principal methodology used in rating AMPH was the Global Chemical
Industry rating methodology 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.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found on Moody's website.
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 assigning
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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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 Ascend Performance Materials Holdings, Inc. a B2 CFR
250 Greenwich Street
New York, NY 10007
No Related Data.
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