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Rating Action:

Moody's assigns Ba1 rating to SPCM's proposed new notes

09 Sep 2021

Frankfurt am Main, September 09, 2021 -- Moody's Investors Service ("Moody's") has today assigned a Ba1 instrument rating to SPCM SA's (SPCM) proposed senior unsecured USD notes. The total proposed issuance amount of $700 million will consist of two tranches of $350 million due in 2027 and 2030, respectively.

Proceeds from the proposed notes issuance will be used to redeem the company's outstanding $500 million notes due 2025, pay fees and expenses related to the refinancing and to fund around €144 million cash to balance sheet.

RATING RATIONALE

The Ba1 rating assigned to the notes reflects their ranking along with SPCM's existing debt, which include €700 million of senior secured notes, a €180 million EIB Loan and other bank loans at the issuer level. The company's unsecured notes are not benefiting from any opco guarantees. They have incurrence covenants, limiting the company's ability to incur additional indebtedness and pay dividends. However, the notes are structurally subordinated to the liabilities of SPCM's operating subsidiaries, such as trade payables, lease liabilities and around €16 million of debt at operating subsidiaries, an increase of these liabilities might affect Moody's notching practices in the future.

Moody's assumes that the proposed transaction will not only extend SPCM's maturity profile but also result in interest savings to the group given that the notes to be redeemed carry a coupon of 4.875%.

The notes issuance will result in a slight increase in gross leverage and Moody's forecast leverage at the end of the year to be slightly below 3.5x, largely unchanged from 2020, which is still in line with the rating assigned, and is also offset by the expected increase in the company's cash balance.

Operationally, Moody's expects that the company to some degree can mitigate the negative impact of higher raw material prices on its EBITDA by price and volume increases, in addition the company will record lower "non-recurring items", which have negatively impacted Moody's adjusted EBITDA in 2020. This will therefore lead to full year Moody's adjusted EBITDA that is moderately higher than the level that was achieved in 2020. Moody's also expects that SPCM will generate FCF around break-even levels in 2021, driven by high capex used to increase production capacity, which is offset by solid cash flow generation at operating level.

SPCM's rating continues to reflect its leading position in polyacrylamide (PAM) used in the water treatment process, mineral extraction, paper process, and the oil industry. SPCM's market share is estimated to be around 48% with its next largest competitor accounting for around 10% of market share. Notwithstanding its focus on PAM the company serves a number of end-markets. The relatively defensive water treatment markets for municipalities and industrial waste-water treatment combined account for around 41% of revenues in H1-21. The Ba1 rating furthermore reflect SPCM's balanced global footprint with close relationships with customers; strong track record of organic growth, conservative financial policy. The rating is constrained by the company's exposure to raw material price fluctuations, particularly propylene and acrylonitrile, both of which are oil based; the competition from substantially larger and financially more flexible companies, such as BASF (SE) (BASF, A3 stable) and Ecolab Inc. (Baa1 positive); its exposure to the cyclical oil and gas production end market (20% of sales); and an ambitious capital spending programme, aimed at expanding capacity and leading to periods of negative FCF.

RATING OUTLOOK

The stable outlook on SPCM's rating reflects Moody's expectation that the company will maintain Moody's adjusted gross leverage around 3x through the cycle and adjusted EBITDA margins in the range of 13% -14% under midcycle conditions.

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

Moody's could upgrade SPCM's rating if the company's leverage would move towards 2.5x and establishes a track record of maintaining RCF/debt in the mid-twenties percentage range, while maintaining FCF at around break-even levels.

Conversely Moody's could downgrade SPCM's rating, if leverage would consistently remain above 3.5x or FCF would be strongly negative for a prolonged period of time. A structural decline in the company's EBITDA margins, pointing to a decrease in the company's ability to adjust pricing or increasing competitive pressure would also likely result in a downgrade of SPCM's rating.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings 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.

COMPANY PROFILE

SPCM SA (SPCM) is the parent holding company of the SNF Group (SNF). SNF, headquartered in Andrezieux, France, is the world's largest chemical company producing polyacrylamide. PAM is a water-soluble chemical used as flocculant to separate suspended solids from liquids, as viscosity modifiers to alter the thickness of liquids, and as drag reducers to decrease pressure drop in segments of pipes. In 2020 the company generated revenues of close to €3 billion and employed around 6,600 worldwide.

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_1288435.

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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