New York, December 07, 2020 -- Moody's Investors Service ("Moody's") has assigned
a B2 rating to the new USD senior unsecured notes to be issued by Kraton
Polymers LLC., guaranteed by Kraton Corporation (B1 stable).
With the proceeds, Kraton plans to refinance its existing $395
million 7% senior unsecured notes due April 2025.
The ratings are subject to the transaction closing as proposed and receipt
and review of the final documentation.
Assignments:
..Issuer: Kraton Polymers LLC (co-issued by
Kraton Polymers Capital Corporation)
....Gtd Senior Unsecured Regular Bond/Debenture,
Assigned B2 (LGD4)
RATINGS RATIONALE
The B2 rating, which is one notch below Kraton's Corporate
Family Rating, reflects the senior unsecured nature of the new USD
notes and their effective subordination to the company's existing
secured indebtedness, including ABL revolving credit facility and
senior secured EURO term loan.
Kraton's proposed transaction will be approximately net debt leverage
neutral, as almost all the proceeds will be used to repay the existing
7% notes. This transaction will likely reduce the company's
annual interest expense given the expected lower coupon of the new USD
notes than that of the existing 7% notes.
Kraton's B1 Corporate Family Rating remains well positioned,
as its recent debt repayment, expected free cash flow generation
and prudent financial policy help mitigate the impact of weak demand on
earnings.
Kraton has a good liquidity thanks to its cash balance, expected
free cash flow and its recently amended and extended $300 million
asset-based revolving credit facility due December 2025.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
The rating could be upgraded if Kraton's adjusted debt/EBITDA is sustainability
below 4.5x. The rating could be downgraded, if EBITDA
margins deteriorate, leverage exceeds 6.0x, or there
is a lack of free cash flow generation.
The principal methodology used in this rating was Chemical Industry published
in March 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1152388.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Kraton Corporation, headquartered in Houston, Texas,
is a major global producer of styrenic block copolymers (SBCs),
which are synthetic elastomers used in industrial and consumer applications
to impart favorable product characteristics such as flexibility,
resilience, strength, durability and processability.
Major end uses for Kraton's Polymer segment products include personal
care products, packaging and films, medical applications,
adhesives, sealants, coatings, paving, roofing
and compounds. In January 2016, Kraton acquired Arizona Chemical
Holdings Corporation, a producer and seller of pine based specialty
chemicals for use in end-markets including adhesives, fuel
additives and roads, and reports results from the acquired business
under its Chemical segment. The company generated revenues of about
$1.8 billion in 2019. In March 2020, Kraton
sold its Cariflex business to Daelim Industrial Co., Ltd.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Jiming Zou, CFA
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Glenn B. Eckert
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
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U.S.A.
JOURNALISTS: 1 212 553 0376
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