New York, September 10, 2020 -- Moody's Investors Service, ("Moody's") assigned
a Baa3 rating to Nutrition & Biosciences, Inc.'s
("N&B") new senior unsecured notes. The Baa3 ratings
of International Flavors & Fragrances, Inc. ("IFF")
and its Prime-3 rating for commercial paper remain unchanged.
The outlook is negative for IFF.
"The successful debt placement would be another major step towards achieving
the transformative merger despite the high initial leverage and integration
risk once the transaction closes," said Domenick R. Fumai,
Moody's Vice President and lead analyst for IFF.
Assignments:
..Issuer: Nutrition & Biosciences, Inc.
.... Gtd. Senior Unsecured Regular
Bond/Debenture, Assigned Baa3
RATINGS RATIONALE
The Baa3 rating assigned to the new unsecured notes of Nutrition &
Biosciences, Inc., does not reflect its current credit
profile as a subsidiary of DuPont de Nemours, Inc. ("DuPont";
Baa1, stable). The rating incorporates its expected credit
quality after its merger with IFF in a Reverse Morris Trust transaction,
which is likely to occur in the first quarter of 2021. The Baa3
rating also reflects the expectation that this debt will be guaranteed
by IFF upon closing of the merger, and will subsequently become
pari passu with IFF's existing debt via either IFF assuming the debt or
providing cross-guarantees. The merger has received IFF
shareholder approval and is expected to close in February 2021.
The new debt will remain on N&B's (a subsidiary of DuPont) balance
sheet until the merger is completed, but will not be guaranteed
by DuPont. Moody's expects the net proceeds from the new
notes, in addition to term loan proceeds raised in a separate financing
transaction, to be applied towards the approximate $7.3
billion special one-time payment to DuPont at the closing date
of the merger. The proceeds of the notes will be held in a segregated
escrow account for the benefit of the noteholders and contain a Special
Mandatory Redemption (SMR) provision, which would require the issuer
to redeem the notes at a price of 101% of the aggregate principal
amount of the notes plus accrued interest if the merger does not occur
by September 15, 2021.
The negative outlook reflects expectations for the combined entity's
leverage to remain high for the rating following the proposed transaction
despite the large amount of equity that will be used to finance the merger.
Moody's estimates pro forma Debt/EBITDA for the combined entity will be
4.8x at the end of 2020. However, Moody's expects
IFF to reduce debt towards 3.5x by the end of 2022 through increased
free cash flow generation as it begins to recognize cost and revenue synergies
resulting from the merger. The negative outlook also considers
significant integration risk associated with the proposed transaction.
While Moody's believes IFF has made sufficient headway integrating the
2018 acquisition of Frutarom, the size and timing of this transaction
will present challenges integrating the two companies. Moody's
expects the Frutarom integration to be substantially complete by the time
the transaction closes, which should allow management to focus on
N&B. The integration risk is partially offset by the long lead
time the company has had from the time of the announcement to when the
transaction closes. IFF is targeting cost synergies of $300
million, which Moody's views as attainable because of the relatively
complementary nature of the merger despite the substantial cost of $355
million estimated to capture the synergies.
An outlook revision to stable is not likely over the next 12 months given
the anticipated time frame to monitor the progress of the integration.
However, Moody's could revise the outlook to stable after full year
2021 results are published if the integration appears to be on track,
including cost and revenue synergies, if the company generates more
than $500 million of free cash flow in 2021 and reduces debt by
a similar amount, and if management maintains its commitment to
conservative financial policies.
IFF's Baa3 rating is supported by the company's leading market positions
in a number of categories that it competes in, with a portfolio
of products that are fairly resilient to economic downturns, allowing
the company to currently operate with higher leverage compared to more
cyclical peers such as Albemarle Corporation (Baa3 stable) and RPM International
Inc. (Baa3 stable). Approximately 85% of IFF's end
markets are in categories that have not been impacted by the pandemic.
The remaining 15%, including Fine Fragrances, Food
Service and Cosmetic Actives are more discretionary items and have been
severely impacted by COVID-19, thus resulting in IFF's second
quarter sales and EBITDA decline, but are expected to gradually
recover as restrictions have been eased and the global economy rebounds.
Moody's believes DuPont's N&B business also has similar characteristics
with significant exposure to food and beverage and health products.
IFF's strong R&D platform is further enhanced by DuPont N&B's
expertise in faster growing, higher margin segments including enzymes,
cultures and probiotics. The rating also incorporates management's
explicit financial policy, which includes the company's public commitment
to maintaining an investment-grade rating, with an adjusted
Net Debt/EBITDA leverage target of less than 3.0x based on management's
calculations by year two post-transaction close from pro forma
Net Debt/EBITDA of 4.4x at close. The company will also
suspend share repurchases until such target is achieved.
IFF will have excellent liquidity after the close of the merger with a
$2 billion revolving credit facility that will likely be undrawn.
As part of the upsized revolver, IFF has expanded the leverage covenant
to a maximum Net Debt/EBITDA ratio of 4.75x through the end of
2021 (technically through the third quarter after completion of the merger)
stepping down to 4.5x for the first three quarters of 2022 (technically
for the fourth fifth and sixth quarters after the merger), and then
3.75x for the seventh, eighth and ninth full quarters after
the closing date and will be 3.5x thereafter. Moody's also
expects IFF to maintain sufficient cash balances of at least $400
million over the next 12 months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's would consider upgrading the ratings if the company achieves Moody's
adjusted financial leverage meaningfully below 3.0x (Debt/EBITDA)
on a sustained basis and retained cash flow to debt sustained above 20%.
An upgrade would also require demonstrated progress towards successfully
integrating N&B, including attaining cost and revenue synergies.
Moody's would also require management to strengthen financial metrics
further prior to any large transaction.
Moody's could downgrade the ratings if adjusted leverage (based on Moody's
calculations) remains above 3.5x (Debt/EBITDA) two years after
the closing, if free cash flow is not applied to absolute debt reduction,
or retained cash flow to debt (RCF/Debt) remains below 10% on a
sustained basis, there is insufficient progress integrating N&B,
failure to achieve demonstrated progress towards the cost synergy target,
or the company pursues a more aggressive financial policy including another
sizable debt-financed acquisition or more shareholder-friendly
actions such as resuming the share repurchases program before reaching
Moody's deleveraging forecast. Additionally, Moody's could
downgrade the rating by the end of 2021 if leverage is not on track to
decline meaningfully below 4.0x, retained cash flow to net
debt remains below 10% and 2021 free cash flow is below $350
million.
Nutrition & Biosciences, Inc., a subsidiary of
DuPont de Nemours, Inc., is a producer of specialty
ingredients and operates in three main business segments, including
Food & Beverage, Health & Biosciences and Pharma Solutions
and is expected to merge with IFF in 2021. The company had sales
of approximately $6.1 billion for the twelve months ended
June 30, 2020.
International Flavors & Fragrances, Inc. (IFF) headquartered
in New York, is a leading creator and manufacturer of flavors and
fragrances used by other manufacturers to impart or improve the flavor
or fragrance of a wide variety of consumer products. IFF generated
approximately $5.1 billion of revenue for the twelve months
ended June 30, 2020.
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.
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.
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 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
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Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Domenick Fumai
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
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
