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18 Apr 2011
Frankfurt am Main, April 18, 2011 -- Moody's Investors Service has assigned a definitive Ba3 rating to
the EUR600 million senior secured notes maturing in 2018 (split into a
EUR320 million fixed rate tranche and a EUR280 million floating rate tranche)
and a B3 rating to the EUR235 million senior unsecured notes due 2019.
RATINGS RATIONALE
Moody's definitive ratings on these debt obligations confirm the
provisional ratings assigned on 21 March 2011. The terms and conditions
of Ontex' new financing package are in line with what Moody's
expected in its last rating action. Moody's notes however
that the company decided to up-size the senior secured notes by
EUR30 million compared to the initial amount at the time of the bond launch,
leading to minor changes in the assigned LGD ranges and point estimates
of the rated instruments.
The notes proceeds have been used to redeem obligations under the EUR600
million existing credit facility, to repay a vendor loan note of
EUR163 million (incl. accrued interest) with the remainder used
to cover transaction related fees and expenses and to bolster the group's
cash position.
The B1 Corporate Family Rating of Ontex reflects (i)the company's
strong market position in the production of private-label hygienic
disposables; (ii) its solid relationships with major European retailers;
(iii) stable market fundamentals in the discretionary personal care industry;
and (iv) an improved cost base on the back of successful restructuring
and efficiency enhancement initiatives over recent years.
The B1 CFR also reflects Ontex's highly leveraged capital structure with
initial leverage pro forma the recapitalization in excess of 5.5x
Debt/EBITDA (as adjusted by Moody's), which we assume to improve
over 2011 only gradually. More fundamentally, the CFR also
considers (i) Ontex's limited size and its narrow product focus;
(ii) the price-competitive nature of the industry. In addition,
input price management is a major challenge as only a minor proportion
of Ontex's contracts contain automatic pass-through mechanisms,
leaving the company exposed to individual negotiations with its customers.
The rating would likely encounter upward pressure if the company were
to manage to improve and sustain leverage, in terms of debt/EBITDA,
below 4.5x on the back of (i) further profitability improvements,
such as EBITA margins approaching the mid-double digits on a sustainable
basis; and (ii) continued positive free cash flow generation,
to be applied to the reduction of net debt.
The rating could come under negative pressure if: (i) Ontex's leverage,
in terms of debt/EBITDA, were to remain materially above 5.5x;
(ii) its free cash flow were to enter negative territory; or (iii)
the company's profitability were to decline, reflected by EBITA
margins falling into single digits.
Adjustments:
..Issuer: Ontex IV S.A.
....Senior Secured Regular Bond/Debenture,
Downgraded to LGD3, 39% from LGD3, 38%
....Senior Unsecured Regular Bond/Debenture,
Downgraded to LGD6, 90% from LGD5, 89%
Assignments:
..Issuer: Ontex IV S.A.
....Senior Secured Regular Bond/Debenture,
Assigned a range of 39 - LGD3 to Ba3
....Senior Secured Regular Bond/Debenture,
Assigned a range of 39 - LGD3 to Ba3
....Senior Unsecured Regular Bond/Debenture,
Assigned a range of 90 - LGD 6 to B3
The principal methodology used in rating Ontex IV S.A. was
the Global Packaged Goods Industry Methodology, published July 2009.
Other methodologies used include Loss Given Default for Speculative Grade
Issuers in the US, Canada, and EMEA, published June
2009.
Ontex, based in Zele, Belgium, is the market-leading
manufacturer of private-label hygienic disposables in Europe,
with products including baby diapers, adult incontinence products
and femcare. With 12 production facilities in eight countries,
the company generated revenues of approximately EUR1.2 billion
in 2010. Following the secondary buyout from Candover, Ontex's
majority shareholders are a consortium of funds controlled by Goldman
Sachs and TPG.
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Frankfurt am Main
Anke Rindermann
Analyst
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Frankfurt am Main
Matthias Hellstern
Senior Vice President
Corporate Finance Group
Moody's Deutschland GmbH
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Moody's Deutschland GmbH
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Moody's assigns definitive ratings to Ontex recent EUR835 million bond issuance
No Related Data.
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