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Rating Action:

Moody's changes Chemours Outlook to Negative

18 Jul 2019

New York, July 18, 2019 -- Moody's Investors Service affirmed The Chemours Company's (Chemours) ratings, including the Ba2 CFR, the Baa3 rating on the secured bank facilities, and the Ba3 senior unsecured rating, but changed the outlook to negative from stable. The negative outlook reflects the heightened level of litigation risk stemming from the growing number of actions filed by states, environmental regulators, water municipalities and private plaintiffs. Litigation is associated with perfluorochemicals (or PFAS), a family of chemicals used for decades to process fluoropolymers, including the Teflon™ line of cookware products.

"Lawsuits recently filed include Natural Resource Damage suits (NRDs), which allege environmental damage and seek to recover or fund remediation costs, by attorney generals in New Jersey, Ohio, New Hampshire, and Vermont; lawsuits filed by public water suppliers in North Carolina, and a growing number of fire fighting foam cases in a number of states," according to Joseph Princiotta, Senior Vice President at Moody's. "Chemours faces a heightened level of litigation risk from these and other lawsuits filed in multiple states and jurisdictions." Princiotta added.

Outlook Actions:

..Issuer: Chemours Company, (The)

....Outlook, Changed To Negative From Stable

Affirmations:

..Issuer: Chemours Company, (The)

.... Probability of Default Rating, Affirmed Ba2-PD

.... Speculative Grade Liquidity Rating, Affirmed SGL-1

.... Corporate Family Rating, Affirmed Ba2

....Senior Secured Bank Credit Facility, Affirmed Baa3 (LGD2)

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

RATINGS RATIONALE

While the negative outlook reflects the growing risk from this litigation, Moody's believes the company has ample resources to handle near term litigation and remediation costs that arise over the next couple of years and that much of the exposure to possible larger liabilities associated with NRD and other lawsuts is longer tail in nature. Moreover, lawsuits filed recently between Chemours and the DuPont entities (DuPont and Corteva) suggest this risk could eventually spill over to the DuPont entities, which would be welcome news for Chemours. The outcome of this litigation, which DuPont contests and has sued to change to arbitration, is also likely several years away.

Affirmation of the Ba2 reflects the modest balance sheet leverage which is currently just under 3.0x (on an adjusted basis) and positive free cash flow, both of which benefit from the upcycle in TiO2 markets and secular growth in Flouroproducts. The affirmation also reflects Chemours' position as a leading global producer in TiO2 pigments, where scale, technology and ore flexibility allow for industry-leading margins, currently and over the cycle. Its profile also reflects leading market positions across much of the fluoroproducts branded franchise, which continues to have a favorable secular growth outlook from Opteon -- a leader and one of only two major producers in the new HFO generation of low global warming refrigerant products.

Moody's expects the favorable fundamentals in TiO2 to continue, at least through 2020, owing to limited new global capacity announced to date against a backdrop of positive demand growth. However, slower growth or plateauing TiO2 prices, combined with raw material cost headwinds, will contract TiO2 margins in 2019. Moody's expects the favorable trend in the fluoroproducts segment to continue as HFO products continue to penetrate US and Asian OEM auto markets and grow in the stationary refrigerant markets.

Negative factors in the credit, aside from the litigation, include the historical cyclical nature of the TiO2 industry, which is recovering from an inventory cycle, but has a favorable outlook due to a mild capacity cycle. The company's Ti-Pure Value Stabilization initiatives, which target price visibility and volume assurance to the customers who participate is intended to smooth the effects of cycles, but its success is currently uncertain. The credit profile also reflects limited diversification as TiO2 and Fluoroproducts account for nearly all of the company's EBITDA.

Chemours' SGL-1 rating indicates very good liquidity and reflects the company's ability to meet 100% of its internal needs from cash and cash flow; the $800 million revolver 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 and could be applied to TLB reduction, though Moody's expects cash to mainly be used for dividends and share repurchases. As of March 31, 2019, cash balances were $697 million, with approximately $697 million available for borrowing under the revolver (undrawn as of March 31, 2019, but availability reduced by $103 million in LOCs; however, Chemours borrowed $75 million under the revolver in April 2019). The revolver's covenants include a maximum secured Net Debt/EBITDA ratio of 2.00x. Moody's expects the company to be in compliance with covenants over the next 12 months at a minimum. The TLB does not have maintenance covenants.

The negative outlook reflects the growing litigation risk and possible future costs associated with PFAS water contamination and other related costs. Given the longer tail nature of this risk and the costs that might result, it's possible that the negative outlook might extend beyond the usual 18 months observation period.

Moody's would consider a downgrade if PFAS litigation begins to result in adverse trial outcomes and significant costs, if settlements with States or municipalities result in expensive agreements, or if litigation were to emerge in a number of other states, jurisdictions or from private parties. A downgrade would also be considered if cash balances and liquidity were to deteriorate, or if Debt/EBITDA were to exceed the high 3x range, or if RCF/Debt falls to single digits.

Moody's would not consider an upgrade until there is better clarity with respect to this litigation and all associated costs. If this risk were to dissipate, Moody's would consider an upgrade if gross adjusted Debt/EBITDA were sustained below 3.0x and RCF/Debt remained above roughly 20%, both on a sustained basis.

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, 2019, were roughly $6.3 Billion.

The principal methodology used in these ratings was Chemical Industry published in March 2019. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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
Senior Vice President
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

No Related Data.
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