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Rating Action:

Moody's assigns a B2 rating to Constellium's proposed €300 million notes

17 May 2021

Frankfurt am Main, May 17, 2021 -- Moody's Investors Service ("Moody's") has today assigned a B2 instrument rating to Constellium SE's ("Constellium" or "group") proposed sustainability-linked €300 million guaranteed senior unsecured notes due 2029. All other ratings on Constellium, including the B2 corporate family rating (CFR), the B2-PD probability of default rating (PDR), and the B2 instrument ratings on its existing guaranteed senior unsecured notes (due 2024, 2026, 2028 and 2029) remain unchanged. The outlook on all ratings is stable.

RATINGS RATIONALE

The proposed new 8-year €300 million guaranteed senior unsecured notes will rank pari passu with the group's existing senior unsecured notes, including the $400 million guaranteed senior unsecured notes due 2024, the $500 million and €400 million guaranteed senior unsecured notes due 2026, the $325 million guaranteed senior unsecured notes due 2028 and the $500 million guaranteed senior unsecured notes due 2029, all issued by Constellium SE. The assigned B2 rating on the new notes is in line with Constellium's B2 CFR and B2-PD PDR, reflecting Moody's standard assumption of a 50% family recovery rate. The new notes will have a sustainability-linked feature, based on two sustainability performance targets. The feature foresees a 12.5 basis points coupon step-up from 2026 onwards if the group failed to reduce its greenhouse gas emission intensity by 25% by 2025 versus 2015 and a 12.5 basis points coupon step-up from 2027 onwards if it failed to achieve a 10% increase in recycled aluminum input by 2026 versus 2019.

These are the same sustainability performance targets that Constellium has committed to for its $500 million sustainability-linked notes due 2029, issued in February 2021.

Proceeds from the proposed notes together with available cash on the balance sheet will be used to redeem Constellium's 5.750% $400 million senior unsecured notes due 2024 at a redemption price of 100.958%, and to cover expected transaction fees and expenses. Upon completion of the refinancing, Moody's expects to withdraw the B2 instrument rating on the 2024 notes.

Moody's recognizes the proposed transaction, which will slightly reduce Constellium's gross debt by about €36 million, implying an around 0.1x reduction in Moody's-adjusted leverage (7.5x debt/EBITDA as of 31 March 2021). Moreover, Moody's expects the transaction to slightly reduce Constellium's interest costs, assuming a possible considerable reduction in the coupon on the new notes, compared with that of the notes to be redeemed (5.75%). In this respect, Moody's acknowledges the group's successful placement of its $500 million notes due 2029 in February 2021 at an attractive 3.750% coupon rate.

The proposed transaction will further improve Constellium's debt maturity profile, with only the €180 million French state guaranteed loan maturing in the next five years (May 2022). Moody's also recognizes the sustainability-linked component of the new notes, which demonstrates the group's ambition to improve its environmental footprint.

The B2 CFR and the stable outlook remain unchanged, following Moody's recent change in the outlook to stable from negative on 6 May 2021. Latest credit metrics, such as Moody's-adjusted gross leverage of 7.5x as of 31 March 2021, position Constellium still weakly in the B2 category. However, Moody's acknowledges Constellium's better than anticipated performance last year thanks to strict cost and working capital management, which supported €189 million positive Moody's-adjusted free cash flow (FCF) in 2020 .

Other factors supporting the B2 CFR include Constellium's (1) solid business profile, underpinned by its diverse product mix and strong market share in high-value-added aluminum rolled and extruded products; (2) healthy liquidity with available cash sources of almost €1 billion as of 31 March 2021; and (3) measures taken to reduce costs and preserve free cash flow and liquidity during the coronavirus-led crisis.

Factors constraining the rating include (1) Constellium's exposure to cyclical end markets, such as automotive, aerospace and industry; (2) the high capital intensity of its business, resulting in earnings sensitivity to volumes; and (3) exposure to metal premium price volatility, although a large share can usually be passed through to customers.

LIQUIDITY

Constellium's liquidity is good. In 2020, the group secured new credit facilities, including €250 million of European government-sponsored facilities, and refinanced notes due 2021 with new $325 million guaranteed senior unsecured notes due 2028. In February 2021, it also refinanced $650 million of guaranteed senior unsecured notes due 2025 with $500 million guaranteed senior unsecured sustainability-linked notes due 2029. As of 31 March 2021, Constellium had €316 million of unrestricted cash on the balance sheet and over €600 million of additional liquidity sources. These, together with expected positive FCF for 2021, will comfortably cover its basic near-term cash needs.

RATIONALE FOR THE STABLE OUTLOOK

The stable outlook reflects Moody's expectation that Constellium will reduce its leverage to an adequate level for the B2 rating (Moody's-adjusted gross debt/EBITDA towards 6x) in the next 18 months, mainly driven by a recovery in earnings. Moody's further expects the group to maintain positive FCF and to use its cash generated principally towards debt reduction.

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

Upward pressure on the rating would build, if Constellium's (1) Moody's-adjusted debt/EBITDA falls below 4.5x, (2) (CFO - dividends)/debt improves to at least 15% (10.5% in the 12 months ended 31 March 2021), (3) FCF remains consistently positive.

Negative rating pressure would develop, if Constellium's (1) leverage could not be reduced towards 6.0x Moody's-adjusted debt/EBITDA over the next 18 months, (2) (CFO - dividends)/debt falls below 10%, (3) FCF turns sustainably negative, (4) liquidity deteriorates.

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was Steel Industry published in September 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1074524. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

COMPANY PROFILE

Headquartered in France, Constellium SE (Constellium) is a global leader in the designing and manufacturing of innovative and high-value-added aluminum products for a broad range of applications dedicated primarily to packaging, aerospace and automotive end-markets. Constellium is organized in three business segments: Packaging & Automotive Rolled Products (P&ARP); Aerospace & Transportation (A&T), and Automotive Structures & Industry (AS&I). In the 12 months through 31 March 2021, Constellium generated revenue of €4.8 billion and Moody's-adjusted EBITDA of €425 million (8.9% margin).

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 rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is 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.

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.

Goetz Grossmann, CFA
Vice President - Senior 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

Christian Hendker, CFA
Associate Managing Director
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.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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