Approximately $550 Million of Debt Securities Affected
New York, January 28, 2011 -- Moody's Investors Service assigned ratings to Kraton Performance Polymers,
Inc.'s (Kraton) proposed credit facility and unsecured notes,
affirmed the B1 Corporate Family Rating (CFR), and changed the Outlook
to Positive from Stable (see list of rating actions below).
Kraton's proposed credit facility, consisting of a $200
million term loan and $150 million revolver, was assigned
a Ba3 (LGD3, 35%) and the proposed $200 million unsecured
notes were assigned a B2 (LGD5, 75%). The ratings
are subject to a final review of documentation and the closing of the
refinancing with the terms and structure described to Moody's.
Proceeds from the proposed facility and notes will be used to redeem the
outstanding credit facility and subordinated notes. The outlook
was moved to positive from stable as a result of the improved operating
performance over 2010 along with the prospect of continued favorable results.
"We expect Kraton's performance to remain strong through 2011 and anticipate
positive rating pressure should the improvement in credit metrics be sustained,"
said Bill Reed, Moody's Vice President.
Kraton's B1 CFR incorporates the expectation that leverage will remain
below 3.0x, that margins will remain elevated, as demand
is expected to stabilize or improve. Moody's expects retained
cash flow metrics to remain strong, but free cash flow metrics could
come under pressure as a result of elevated working capital, from
raw material volatility, and increased capital expenditures,
earmarked toward efficiency and profitability programs at existing plants.
Ratings Assigned:
..Issuer: Kraton Performance Polymers, Inc.
....Gtd. Senior Secured Revolver,
Assigned Ba3, LGD3, 35%
....Gtd. Senior Secured Term Loan,
Assigned Ba3, LGD3, 35%
....Gtd. Senior Unsecured Notes due
2019, Assigned B2, LGD5, 76%
Outlook Actions:
..Issuer: Kraton Performance Polymers, Inc.
....Outlook, Changed To Positive from
Stable
Ratings Affirmed:
....Corporate Family Rating, Affirmed
at B1
....Probability of Default Rating, Affirmed
at B1
....Gtd. Senior Secured Revolver,
Affirmed at Ba3, LGD3, 35% from Ba3, LGD3,
31% *
....Gtd. Senior Secured Term Loan,
Affirmed at Ba3, LGD3, 35% from Ba3, LGD3,
31% *
....Gtd. Senior Subordinated Global
Notes, Affirmed at B3, LGD6, 97% from B3,
LGD5, 82% *
*: These ratings will be withdrawn upon successful completion
of this transaction.
RATINGS RATIONALE
Balance of Press Release addresses:
1. Key elements of the rationale underlying credit rating
2. Key rating assumptions/factors and what could cause the rating
and/or outlook to change
3. Newly issued instrument (limited to new asset type or unique
structural feature requiring a new methodology or substantial change to
a methodology).
Moody's positive outlook reflects Kraton's improved margins through
2010 and that they have exceeded our adjusted leverage ratio target,
demonstrated by the September 30, 2010 LTM 2.3x ratio.
The outlook further anticipates that Kraton will continue the improved
profitability into 2011, capitalizing on tightness in raw materials
and improved volumes. We could raise the ratings if the company
is able to sustain the improved credit metrics; adjusted leverage
(Debt/EBITDA) below 3.0x and Retained Cash Flow/Debt better than
20%. We would also look for the company to maintain their
conservative fiscal policies pertaining excess cash flow and demonstrate
a sustainable resolve to continued improvement in the company's
credit profile.
Moody's most recent announcement concerning the ratings for Kraton was
on May 14, 2010 when the ratings were raised following the company's
successful initial public offering (IPO) and improved credit profile.
The principal methodology used in this rating were Moody's Global Chemical
Industry rating methodology published December 2009, and Loss Given
Default for Speculative-Grade Non-Financial Companies in
the U.S., Canada and EMEA published in June 2009.
Kraton, headquartered in Houston, Texas, is a leading
global producer of styrenic block copolymers, or SBCs, which
are synthetic elastomers used in industrial and consumer applications
to impart favorable product characteristics such as flexibility,
resilience, strength, durability and processability.
Major end uses for Kraton's products include personal care products,
packaging and films, IR Latex, adhesives, sealants,
coatings, and compounds. Kraton also makes products that
serve the paving and roofing industries. The company generated
revenues of $1.2 billion for the LTM period ending September
30, 2010.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Analytics information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
New York
William Reed
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Steven Wood
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's assigns ratings to Kraton's proposed credit facility and notes; outlook moved to positive