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Rating Action:

Moody's assigns Ba3 to Chemours' New Senior Unsecured Notes

21 May 2018

New York, May 21, 2018 -- Moody's Investors Service, ("Moody's") assigned a Ba3 rating to €450 million in new senior unsecured Euro notes due 2026 by The Chemours Company. Proceeds of the issuance are expected to be used to refinance up to $250 million of Chemours' outstanding 6.625% senior notes due 2023 and any and all of Chemours' outstanding 6.125% senior notes due 2023. The outlook on the ratings is stable.

Assignments:

..Issuer: Chemours Company, (The)

....Senior Unsecured Regular Bond/Debenture, Assigned Ba3 (LGD4)

LGD Adjustments:

..Issuer: Chemours Company, (The)

....Senior Unsecured Regular Bonds/Debentures, Adjusted to LGD4 from LGD5

RATINGS RATIONALE

The recent upgrade to Ba2 CFR reflects Chemours improved credit profile made possible by substantial growth in EBITDA since early 2016 -- the result of the robust cyclical recovery in titanium dioxide pigments, aggressive cost cutting and restructuring across the portfolio, and from the market penetration and growth of the hydrofluoroolefins (HFOs) family of refrigerant products sold into the auto OEM markets in Europe and the U.S. The Ba2 CFR rating reflects Chemours' position as the leading global producer in TiO2 pigments, where scale, technology and ore flexibility allow for industry-leading margins, currently and over the cycle. The rating also reflects leading market positions across much of the fluoroproducts branded franchise, which continues to have a favorable growth outlook from Opteon -- a leader and one of only two major producers in the new HFO generation of auto refrigerant products.

Moody's expects the favorable fundamentals and outlook in TiO2 to continue, at least into 2019, owing to limited new global capacity announced to date against a backdrop of positive, albeit modest, demand growth, allowing industry operating rates to nudge higher and supporting producer pricing power. In addition, the bifurcated or segmented market benefits producers like Chemours that target higher quality end use chloride markets serving paints, coatings, and plastics. Moody's also expects the favorable trend in the fluoroproducts segment to continue as HFO products continue to penetrate US OEM auto markets and from growth in the stationary refrigerant markets.

Negative factors in the rating include the historical cyclical nature of the TiO2 industry, notwithstanding the current cyclical strength and the company's announced value stabilization initiatives, as well as limited diversification, as TiO2 and Fluoroproducts account for nearly all of the company's EBITDA. Chemours also faces exposure to ongoing environmental costs and numerous environmental sites. As recently reported (New Lawsuits Heighten Risk to Chemours and DuPont, February 27, 2018), Moody's believes there is a heightened level of litigation risk to both Chemours and E.I. du Pont de Nemours and Company (A3, Negative) stemming from litigation filed earlier this year in North Carolina and Ohio, as well as other recent events associated with perfluorochemicals (or PFCs), a family of chemicals used for decades to process fluoroproducts.

Management's 2018 adjusted EBITDA guidance is at the top end of $1.70-1.85 billion, which Moody's believes is achievable and is supported by realization of recent and proposed price increases, albeit the pace of increases is expected to moderate. Further ramp up of Opteon YF refrigerant products and completion of the company's transformational plan and cost cutting will also drive EBITDA growth. Free cash flow (as calculated by Moody's) is expected to be over $450 million this year, despite the higher capex budget, a large portion of which will be spent to complete a new HFO facility in Corpus Christi, TX, expected to be the largest of its kind; and to complete the sodium cyanide mining expansion project in Mexico, which will double its production in this gold mining product. The project has been temporarily halted due to permitting challenges, but the company expects to resume construction once these challenges are resolved. Moody's estimates PF gross LTM leverage for the December quarter (adjusted for pensions and operating leases and including debt incurred to fund the PFOA settlement) at around 3.1x.

Chemours' SGL-1 rating indicates very good liquidity and reflects its ability to meet 100% of its internal needs from cash and free cash flow; the revolver capacity of $800 million is not expected to be drawn at year end, except for modest letter of credit usage. The revolver has a five year maturity with a springing maturity inside the existing 2023 bonds. Working capital typically consumes cash in the first half of the year, but is a significant source of cash in the second half. The cash balance of roughly $1.4 billion at March 31, 2018 is expected to be roughly unchanged pro forma for the current financing; gross debt is also roughly unchanged. The revolver's covenants include a maximum secured net debt/EBITDA ratio of 2.50x, declining to 2.00x by January 1, 2019 and thereafter. Moody's expects the company to be in compliance with covenants over the next 12 months. The TLB does not have maintenance covenants.

The stable outlook anticipates gross adjusted leverage declines and remains below 3.6x and the outlook for TiO2 prices and the ongoing ramp up of Opteon remain favorable, supporting further EBITDA growth. The stable outlook also assumes that the recent master complaints alleging water contamination in Ohio and North Carolina do not result in substantial costs, settlements or adverse trial outcomes and that cash balances remain strong until the litigation risk has better clarity.

Moody's would be unlikely to consider an upgrade until PFC (which includes PFOA and Genx) litigation risk has better clarity, or until there are clearer settlement parameters with one or more of the complainants, despite the likelihood that metrics might rise above what is typically expected for a Ba2 credit profile. The ratings will be constrained until there is better clarity with respect to recently filed litigation in the North Carolina and Ohio courts, and similar litigation doesn't emerge in other states.

A downgrade would be considered if debt/EBITDA exceeds the high 3s or low 4s, or if RCF/debt falls to single digits, on a sustainable basis. Moody's might also consider a downgrade if cash balances and liquidity deteriorate, or if PFC litigation begins to result in significant costs or adverse trial outcomes or if additional litigation were to emerge in a number of other states or jurisdictions.

The principal methodology used in these ratings was Chemical Industry published in January 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Chemours Company (The), headquartered in Wilmington, Delaware, is a leading global provider of performance chemicals through three reporting segments: Titanium Technologies, Fluoroproducts and Chemical Solutions. Revenues for the last twelve months ended March 31, 2018, were roughly $6.5 Billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Joseph Princiotta
VP - Sr Credit Officer
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

Brian Oak
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
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

No Related Data.
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