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Global Credit Research - 13 Apr 2011
London, 13 April 2011 -- Moody's Investors Service has today assigned a first-time
corporate family rating (CFR) and probability of default rating (PDR)
of B1 to ALBA Group plc & Co. KG ("ALBA Group").
Concurrently, Moody's has assigned a provisional (P)B3 senior
unsecured rating to the company's proposed EUR200 million senior
notes due in 2018 (the "Notes"), with a loss given default
assessment of LGD5. The outlook on all ratings is stable.
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.
The B1 CFR recognises ALBA Group's long track record of operations
and well-established position as a leading regional waste and recycling
operator in Germany. The rating also reflects the group's
diverse operations across the whole value chain of waste management and
recycling activities, which limits its reliance on any particular
market or business line. At the same time, the rating reflects
the competitive nature of the markets in which ALBA Group operates,
its limited scale and the group's high financial leverage (initially
calculated by Moody's at around 4.6x on a debt/EBITDA basis,
although expected to decrease as required by bank covenants). The
group's credit quality is further constrained by the ALBA Group's
structurally low margin, in particular in the case of the low value
added steel and metals trading business, as well as the cyclicality
of its key markets.
Moody's expects that ALBA Group's operating cash flows will
continue to be underpinned by long-term contracts with municipalities
and a good track record of co-operation with industrial customers
on a short-term contract basis. Whilst ALBA Group benefits
from a well-developed infrastructure network and long-standing
relationships with its suppliers and customers, Moody's believes
that the waste and raw materials trading markets do not have any significant
barriers to entry and thus the group has limited pricing power.
The rating agency notes that these markets have improved since the onset
of the financial crisis, although the current prospects for the
waste market in Germany, and Europe overall, remain somewhat
subdued given the macroeconomic slowdown.
ALBA Group is currently in the process of a reorganisation and aims to
conclude a Domination and Profit and Loss Transfer Agreement ("DPLTA")
with Interseroh SE ("Interseroh"), a company currently
75.003% owned by ALBA Group (with the remainder in free
float). Moody's understands that given that it has more than
75% of the voting rights, ALBA Group will be able to approve
the agreement at the general meeting scheduled for 17 May 2011,
although the completion of the reorganisation may be delayed. As
long as this process is pending finalisation and subject to a number of
steps -- including a possible court decision in the event
that the minority shareholders contest the agreement --
Interseroh and its subsidiaries will not be a part of the restricted group
and the company will not be required to distribute all its profits to
ALBA Group. Moody's believes that the probability that the
DPLTA may not be executed is fairly small. In any case, the
rating agency has considered that the assigned ratings could be maintained
in the event this process is not executed as currently envisaged by management.
In Moody's view, ALBA Group's current liquidity is sufficient
to support its business operations. However, the rating agency
notes that the group remains exposed to working capital fluctuations,
particularly associated with its trading activities. The group's
liquidity is supported by a EUR100 million undrawn revolving credit facility
(RCF) maturing in 2013. Moody's notes that this amount is
available in equal parts to ALBA Group and Interseroh and that ALBA Group
intends to take the necessary corporate measures to roll in the Interseroh's
facility into ALBA Group's facilities upon completion of the reorganisation
process. Amortisation of the term loans is limited, although
the rating agency notes that covenant headroom may tighten over time.
The current stable outlook reflects Moody's view that (i) ALBA Group's
capital structure is reasonably resilient to downside sensitivities;
(ii) the group should generate sufficient free cash flows to support its
debt service, and (iii) the group will maintain an adequate liquidity
profile. Upward pressure on the rating would require ALBA Group
to (i) achieve a solid cash flow generation on a sustainable basis,
so that leverage were to trend consistently below 3.0x (Moody's
adjusted); and (ii) demonstrate a record of managing working capital
needs of the consolidated group. Conversely, downward rating
pressure could develop if (i) the group were unable to demonstrate a trajectory
of de-leveraging below 4.5x on a debt/EBITDA basis (Moody's
adjusted) in the short term; and (ii) liquidity concerns were to
The (P)B3 rating assigned to the Notes reflects that they will rank pari
passu with the senior secured facilities (term loans and RCF) but they
will not benefit from the same security package. The Notes will
initially have the benefit of guarantees from parent companies as well
as from certain subsidiaries of ALBA Group, excluding Interseroh
and its subsidiaries. For the fiscal year ended (FYE) 31 December
2010, these represented 87% of total assets (80% of
total revenue or 130% of total EBITDA). Upon completion
of the reorganisation, as Interseroh becomes part of the restricted
group, the Notes will also benefit from guarantees from Interseroh
and certain subsidiaries of the company. Consequently, and
based on the 2010 year-end financial information, the company
and the guarantors will represent 87% of total assets (74%
of total revenue or 99% of total EBITDA). Proceeds of the
Notes issuance will be used to refinance a portion of the existing debt
within the ALBA Group.
This is the first time that Moody's has assigned ratings to ALBA Group.
ALBA Group's ratings were assigned by evaluating factors that Moody's
considers relevant to the credit profile of the issuer, such as
the company's (i) business risk and competitive position compared with
others within the industry; (ii) capital structure and financial
risk; (iii) projected performance over the near to intermediate term;
and (iv) management's track record and tolerance for risk. Moody's
compared these attributes against other issuers both within and outside
ALBA Group's core industry and believes ALBA Group's ratings
are comparable to those of other issuers with similar credit risk.
Other methodologies used include Loss Given Default for Speculative Grade
Issuers in the US, Canada, and EMEA, published June
ALBA Group plc & Co. KG, headquartered in Berlin,
is a holding company for a group focused on waste management, recycling
and environmental services. ALBA Group currently owns a 75.003%
share in the capital stock of Interseroh SE, a Cologne-based
recycling and raw materials trading company, with the remaining
24.997% being publicly held. Axel and Eric Schweitzer,
the sons of ALBA Group's founder, each indirectly own 50%
of the capital of ALBA Group. The group reported consolidated revenues
of EUR2.7 billion for FYE 31 December 2010.
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
Service information, and confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
The rating has been disclosed to the rated entity or its designated agents
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Moody's Investors Service may have provided Ancillary or Other Permissible
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Please see ratings tab on the issuer/entity page on Moodys.com
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Moody's assigns B1 rating to ALBA Group; stable outlook
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