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Global Credit Research - 29 Jun 2010
Frankfurt, June 29, 2010 -- Moody's Investors Service has today assigned a B1 corporate family rating
(CFR) and probability of default rating (PDR) to Oxea SARL, a Luxemburg
based oxo chemicals producer. At the same time, it has assigned
a provisional (P)B2 (LGD 4; 61%) rating to EUR500 million
equivalent of senior secured guaranteed notes to be issued by a fully
owned and guaranteed subsidiary of Oxea SARL. The outlook on all
ratings is stable. This is the first time that Moody's has rated
Moody's says that Oxea's B1 CFR reflects (i) its strong market
position in a relatively consolidated oxo chemicals industry; (ii)
the group's competitive cost position, which is supported
by a lean organisation, secured access to tight raw materials and
relatively high share of raw material price indexed sales contracts;
(iii) the company's experienced management, with more than
20 years of oxo chemicals experience on average per board member;
and (iv) the supportive demand/supply balance for oxo chemicals after
capacity rationalisations occurred at the beginning of the century.
The rating is also supported by the good visibility of new capacity coming
on stream over the next three to four years and the capital intensiveness
of bringing new oxo plants on stream (EUR400 million investment for a
world scale plant with no certainty of recovering the cost of capital
on the investment at current margin levels) and the necessity to secure
access to feedstock, which is not easy given the current tightness
in propylene. Moody's also views positively Oxea's
large product diversity with exposure to numerous applications (lubricants,
paints, coatings, inks, etc.) and end markets
(automotive, construction, cosmetics, agrochemicals,
pharmaceuticals, etc.) with limited substitution risk.
The rating remains constrained by (i) the company's leveraged capital
structure pro-forma of the group's refinancing, repayment
of shareholder loans and payout of dividends to its owner; (ii) its
exposure to volatile and tightly supplied raw materials costs, although
the company has historically managed sourcing and pass through of input
costs volatility to its customers very well; and (iii) its large
concentration of production on two assets (Oberhausen plant in Germany
and Bay City plant in the US account for almost 90% of nameplate
capacity), which raises production outage risk, although these
facilities are well invested and Oxea has a strong track record of production
Further factors constraining the rating include the company's lack
of significant presence in Asia with no production capacity and less than
20% of group revenues against a background of above average oxo
chemicals demand growth expectations in this region. In addition,
its relative size is modest compared to the publicly rated European chemicals
universe, and it has a relatively low margin business with reported
EBITDA margins in the range of 9% to 12% over the past three
The liquidity profile of Oxea pro-forma of the refinancing is adequate.
Main liquidity needs of Oxea over the next twelve months mainly consisting
of working capital and capex funding requirements are expected to be covered
from operating cash flows. The liquidity of the group is further
supported by EUR10 million of cash on balance sheet pro-forma of
the refinancing and the access to EUR75 million of revolving credit facilities
undrawn for cash (availability EUR61 million due to outstanding guarantees)
and EUR29 million of guarantee facilities. The group's new
revolving and guarantee facilities have accordeon features allowing an
increase of total commitments of up to EUR16 million subject to the successful
placement of EUR500 million equivalent of senior secured guaranteed notes.
The rating was weakly positioned in the B1 rating category based on pro-forma
FYE 2009 audited numbers. Oxea's YTD May 2010 performance
has been robust supporting the deleveraging of the group and improving
the positioning in the B1 rating category. The stable outlook assigned
to the ratings assumes that Oxea will continue to deleverage its balance
sheet to position the group comfortably within the current rating category.
Moody's would require Oxea to bring down debt/EBITDA towards 4.5x
on a sustainable basis for it to be adequately positioned in the B1 rating
category. The rating agency also expects Oxea's management
to continue to apply discretion in the implementation of its organic and
external growth strategy supporting the expected deleveraging.
This expectation is predicated upon a gradual recovery in chemicals demand
across all regions with continued stronger growth patterns anticipated
in emerging economies. The strong recovery in emerging market economies
has been the main driver of the recovery in the European Chemicals industry.
The derailing of emerging economies growth and/or a reversal in the recovery
of developed economies, which are concurrently considered as tail
risks could invalidate Moody's assumption underlying Oxea's
The principal methodology used in rating Oxea SARL was the Global Chemicals
Industry methodology, which can be found at www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating this issuer can also be found in the
Rating Methodologies sub-directory on Moody's website.
Headquartered in Luxemburg, Oxea SARL is the world's second-largest
supplier of oxo intermediates and derivatives (largest player in the merchant
Oxo market, the market for non-captive third-party
customers). The company was formed through the merger of the oxo
chemical assets of Celanese with the assets of an oxo chemicals joint
venture between Celanese and Evonik. Both assets were acquired
by Advent International and merged in March 2007 and the company named
Oxea. Oxea maintains five production facilities in Europe and North
America, where it also generates most of its revenues (EU:
45%; NAFTA: 30%). In 2009, Oxea
generated sales of EUR888 million and reported an EBITDA of EUR99 million.
The company employs around 1,350 people.
David G. Staples
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Asst Vice President - Analyst
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's assigns B1 CFR to Oxea SARL; stable outlook
No Related Data.
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