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Global Credit Research - 28 Jun 2010
First time issuer / EUR 280 million to be issued
Frankfurt, June 28, 2010 -- Moody's Investors Service has assigned a B1 Corporate Family Rating (CFR)
and a B1 Probability of Default Rating (PDR) to Nordenia International
AG ('Nordenia'). At the same time, Moody's has
assigned a provisional (P)B2 rating to the proposed EUR280 million Senior
Second Priority Notes of Nordenia Holdings GmbH. The rating outlook
is stable. The (P)B2 assumes that (i) an intended merger between
Nordenia Holdings GmbH and Nordenia will be implemented in short order
and in no case later than 6 months from issuance and that (ii) the structure
and bondholders protection described below post merger will be acted upon
in due course. Failure to complete any of these two steps promptly
would put strong downward pressure on the rating of the notes as they
would remain very junior in the capital structure. Moody's issues
provisional ratings in advance of the final sale of securities and these
ratings reflect Moody's preliminary credit opinion regarding the transaction
only. Upon a conclusive review of the final documentation,
Moody's will endeavour to assign a definitive rating to the notes.
A definitive rating may differ from a provisional rating. This
is the first time that Moody's rates Nordenia.
The B1 Corporate Family Rating reflects Nordenia's solid business
profile with (i) a high portion of value added and customized products
with leading market shares in certain niche segments, (ii) the majority
of sales under longer term contractual agreements and supported by (iii)
strong customer ties and longstanding relationships including a collaboration
of R&D activities, and (iv) an improved cost base on the back
of successful rationalization and cost reduction initiatives in recent
years. The rating also considers the earnings recovery over 2009
which continued in the first quarter of 2010 and our assumption that these
improvements can be at least preserved on the back of higher volumes and
an improved product mix. In addition, the B1 rating also
reflects our assumption of a solid liquidity cushion going forward including
sufficient headroom under financial covenants.
The rating is, however, constrained by the high customer concentration
with the largest customer representing sales in excess of one third of
2009 group sales, which however is to some extent mitigated by the
longstanding relationship with constantly rising sales volumes as well
as a strong integration into product development. Moreover,
we caution that Nordenia is exposed to raw material price fluctuations
(e.g. resin and other chemical products such as adhesives,
additives and inks) and it might be challenging to recover increasing
input costs from customers in a timely fashion. In addition,
a limited diversification in terms of geography (about 75% of 2009
revenues were generated in Europe) and substrate diversification given
the full reliance on resins weighs on the rating. Lastly,
the re-leverage of the group to fund a one-time shareholder
distribution underlines a certain aggressiveness in the shareholder's
financial policy as does the financing structure and results in clearly
weakened credit metrics.
The stable outlook incorporates Moody's expectation that the group
will continue its path of profitability improvements on the back of growing
volumes and an improved product mix and through capitalizing on past investment
activity underlined by improved Q1 2010 performance compared to Q1 last
year. These expected improvements together with continued positive
free cash flow generation should enable the company to de-leverage
to below 5 times Moody's adjusted Debt/EBITDA over 2010, by
thus achieving some headroom in the B1 rating category. This headroom
may be used for a further regional expansion of the business through potential
bolt-on acquisitions or greenfield projects to increase the ability
of serving its globally active customer base. Following the re-leverage
of the group to fund a shareholder distribution, the stable outlook
also assumes a more balanced financial policy going forward while we also
expect solid liquidity cushion including sufficient covenant headroom
to be preserved.
The ratings could be upgraded should Nordenia manage to improve and sustain
leverage in terms of Moody's adjusted Debt/EBITDA to below 4.5
times on the back of further profitability improvements such as EBIT-margins
increasing to the low-to mid double digit percentages and through
continued positive free cash flow generation (excl. the planned
one-time shareholder distribution) to be applied to net debt reductions.
The rating could come under negative pressure should leverage in terms
of Moody's adjusted Debt/EBITDA move to clearly above 5 times,
Free Cash Flow (excl. the planned one-time shareholder distribution)
turning negative or should profitability in terms of EBIT-margins
not move towards the low double digits.
The proposed EUR280 million Senior Second Priority Notes will be issued
by Nordenia Holdings GmbH, a special finance vehicle and ultimate
holding company of the group, which will, following the shareholder
distribution, be merged with Nordenia International AG. Prior
to the planned merger, the notes will not benefit from any upstream
guarantees. Until the merger, investor protection is solely
linked to a claim under a EUR70 million intercompany loan and a pledge
over the shares of Nordenia International AG. Upon the completion
of the intended merger of Nordenia Holdings GmbH and Nordenia International
AG, the proposed notes will benefit from upstream guarantees of
operating subsidiaries that account for about 80% of consolidated
2009 revenues, EBITDA and assets. We understand that the
merger will be contemplated within a short time frame of a few months
following the bond issuance, but rely in this respect on managements
assurance that minority shareholders will not participate in any award
proceedings resulting in delays of the process. However,
should there be delays in implementing this merger, the rating of
the proposed Senior Second Priority Notes might be subject to revision
given the considerably weaker investor protection in the pre-merger
Apart from the proposed Senior Second Priority Notes there will be priority
bank debt relating to a EUR100 million revolving credit facility ranking
ahead of the proposed notes. In addition, the capital structure
includes EUR10 million of other third party debt and some smaller amount
of finance leases ranking pari passu with the proposed Senior Second Priority
Notes in Nordenia's debt structure. Given these assumptions,
Moody's Loss-Given-Default Methodology results in
a (P)B2 (LGD 4, 67%) instrument rating for the EUR280 million
Senior Second Priority Notes. The proceeds of EUR280 million together
with about EUR45 million of cash are planned to be used (i) for a distribution
of EUR195 million to shareholders by way of a one-time dividend,
whereby Moody's understands that this amount exceeds Oaktree Capital's
initial investment, (ii) to repay EUR115 million of bank debt,
and (iii) to cover transaction expenses.
..Issuer: Nordenia Holdings GmbH
....Senior Unsecured Regular Bond/Debenture,
Assigned a range of 67 - LGD4 to (P)B2
..Issuer: Nordenia International AG
....Probability of Default Rating, Assigned
....Corporate Family Rating, Assigned
The principal methodology used in rating Nordenia was Moody's Global Packaging
Manufacturer Methodology, published in June 2009 and available on
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
Nordenia, based in Greven, Germany, is an integrated
developer and manufacturer of customized plastic hygiene components and
flexible plastic packaging products, largely focused on the consumer
goods industry. With about 3,000 staff and 15 production
facilities in 8 countries, the company generated revenues of EUR664
million in 2009. Majority owner with an about 86% stake
is private equity investor Oaktree.
Eric de Bodard
Corporate Finance Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's assigns B1 Corporate Family Rating and provisional (P)B2 Bond Rating to Nordenia -- Outlook stable
No Related Data.
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