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Rating Action:

Moody's assigns B2 rating to Nobian, stable outlook

14 Jun 2021

Frankfurt am Main, June 14, 2021 -- Moody's Investors Service ("Moody's") has today assigned a B2 corporate family rating (CFR) and a B2-PD probability of default rating (PDR) to Nobian Finance B.V. (Nobian). Moody's has also assigned a B2 instrument rating to €1,615m of the guaranteed senior secured indebtedness which Moody's understands can take the form of term loan and senior secured notes plus the €200 million proposed guaranteed senior secured revolving credit facility, all of these instruments are borrowed by Nobian Finance B.V. The outlook on the ratings is stable.

RATINGS RATIONALE

The assigned B2 rating reflects Nobian's initially high pro-forma gross leverage, as adjusted and defined by Moody's, of 6.7x for the last 12 months that ended March 2021 but also its strong EBITDA margins compared to other chemical peers. Moody's expects gross leverage to be close to 6.5x, on a pro-forma basis, by the end of 2021 and further deleveraging to well below 6x in 2022 driven by EBITDA expansion. The company is initially weakly positioned in the B2 rating category, and therefore there is also limited cushion in the rating for unexpected underperformance compared to Moody's expectations.

Nobian's B2 CFR is primarily supported by (1) its leading market positions in industrial salt and chlor-alkali products in Northwestern Europe and its long-standing relationship with its customers; (2) its backward integrated business model across the energy-salt-chlorine value chain which enables a low cost structure leading to a high profitability with Moody's adjusted EBITDA margin at around 27% in 2020; (3) Moody's expectation of additional earnings from growth capex in the past which was invested in additional chloromethanes capacity and energy storage in its salt caverns with a combined additional EBITDA contribution of over €30 million per annum by fiscal year 2022; (4) its ability to generate positive free cash flow despite elevated investments into growth projects over the next years; (5) limited chlor-alkali capacities additions in Europe and a recovery of its industrial and automotive end-markets which should support improving caustic soda prices over the medium term; and (6) high barriers to entry including high safety and regulatory standards, technological knowledge and capital intensity.

Nobian's B2 CFR is primarily constrained by (1) its small size relative to peers with revenues of around €1 billion and its geographical concentration in Northwestern Europe; (2) its high starting pro-forma gross leverage, as adjusted and defined by Moody's, of around 6.7x (considering €16 million run-rate EBITDA from contracted demand of the chloromethanes expansion and €70 million expected debt repayment from the net disposal of the Salt Specialties sale) for the last 12 months that ended March 2021; (3) some degree of earnings volatility, mostly related to caustic soda; (4) its exposure to raw material price fluctuations which are partially mitigated by pass-through mechanisms for its salt and chlorine contracts; and (5) a fairly large capital expenditure program over the next years with peak investments of around €190 million, on a reported basis, in 2023 which constrain Nobian's ability to meaningfully reduce gross debt.

Moody's expects Nobian's leverage to decrease to well below 6x by 2022 driven by additional EBITDA generation from contracted demand of the methyl chloride capacity additions in its plant in Frankfurt and the energy storage in salt caverns, expected higher volumes in the absence of larger turnarounds in Rotterdam, standalone costs savings and a more favorable pricing environment for caustic soda. Since 2018 when European caustic soda price hit its all-time high due to a 10% capacity reduction following regulatory changes, realized caustic soda prices declined significantly over the last years. In contrast to many other base chemicals, caustic soda prices remained fairly low in Q1-21 due to strong supply. Moody's expects caustic soda prices to gradually improve on the basis of limited supply expansion and continued strong demand. Caustic soda is a by-product of the chlorine production which currently benefits from strong demand from its main downstream application, polyvinyl chloride (PVC).

ESG CONSIDERATIONS

Nobian's rating takes into account in its private-equity ownership, which entails weaker reporting standards than those of public companies, and a financial policy that tolerates high leverage.

As of the end of December 2020, Nobian reported provisions for environmental costs and decommissioning amounting to €25 million and €99 million, respectively, largely unchanged from last year. The current decommissioning provisions relate to Nobian's salt caverns in Hengelo. Chlorine is a highly hazardous material, hence regulatory requirements with regards to handling chlorine are strict.

LIQUIDITY PROFILE

Nobian has a solid liquidity profile. The opening cash balance at time of closing of the transaction is expected to be around €70 million and the company has full availability under its €200 million RCF. In combination with forecasted funds from operations of around €200 million in 2022, these funds are sufficient to cover capital expenditure, as adjusted and defined by Moody's, of around €170 million, moderate capital swings and day-to-day cash needs (estimated to be around 3% of annual sales).

The availability of the RCF is subject to a total first lien net leverage covenant of 9.15x which will be tested when RCF utilization (net of cash on balance sheet) is at or above 40%.

STRUCTURAL CONSIDERATIONS

Moody's rates the proposed €1,615 million guaranteed senior secured instruments and the proposed €200 million guaranteed senior secured multicurrency revolving credit facility at B2. These debt instruments rank pari passu and share the same security package and guarantor coverage. Entities representing a minimum of 80% of consolidated EBITDA will guarantee the senior secured debt.

RATIONALE FOR STABLE OUTLOOK

The stable outlook on Nobian's rating reflects Moody's expectation that gross leverage will decline to well below 6x by 2022. The stable outlook also assumes that the company's liquidity will remain adequate with positive FCF generation on a consistent basis despite elevated capital spending over the next years.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Moody's could upgrade ratings if (1) debt/EBITDA would decline to below 5.0x on a consistent basis; (2) FCF/debt would be consistently in the high single digits (%); and (3) EBITDA margin would remain steady in the mid- to high-20s in percentage terms.

Conversely, Nobian's ratings could be downgraded if (1) debt/EBITDA would remain above 6.0x; and (2) the company's liquidity profile would deteriorate as a result of negative FCF; and if (3) Nobian's EBITDA margins would decline to the low twenty percentage on a consistent basis.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Chemical Industry published in March 2019 and available at http://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.

COMPANY PROFILE

Netherlands-based Nobian Finance B.V. is a European base chemicals producer, primarily focused on the chlor-alkali chain which accounted for around 59% of its sales in fiscal year 2020. The company operates through four main segments: i) salt; ii) chlor-alkali, iii) chloromethanes and iv) energy. In 2020, the company generated around €938 million of revenues and generated company-adjusted EBITDA of around €296 million.

Nobian is a spin-off of Nouryon Finance B.V. (B2 stable). Nobian´s owners are The Carlyle Group (Carlyle) and the Government of Singapore Investment Corporation (GIC), which carved out Nouryon Finance B.V. from Akzo Nobel N.V. (Baa1 stable) in 2018.

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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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.

Moritz Melsbach
Asst Vice President - Analyst
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Matthias Hellstern
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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