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I AGREE
21 Nov 2011
New York, November 21, 2011 -- Moody's Investors Service changed the rating outlook for Momentive Performance
Materials Inc. (MPM) to stable from positive reflecting the third
quarter decline in sales volumes and expectations that performance over
the next year is likely to be constrained by weaker volumes and margins.
Moody's also affirmed the company's other ratings (Corporate Family Rating
at B3), and adjusted the LGD assessments on the outstanding debt.
"The impact of softening demand and high raw material prices has disrupted
the trajectory of improving fundamentals, and will result in an
acceleration of cost reduction activities," stated John Rogers,
Senior Vice President at Moody's.
RATINGS RATIONALE
Moody's stable outlook reflects the favorable maturity schedule (subsequent
to the February 2011 credit agreement amendment) and good liquidity position,
as well as the expectation that there will be some additional integration/cost
reduction charges. Moreover, Moody's expects that softening
demand will pressure performance such that EBITDA will remain below $90
million/quarter for several quarters. However, if MPM can
reverse this negative trend in 2012, sustainably generate FCF/debt
above 4% and RCF/Debt above 8%, Moody's would
consider the appropriateness of a higher rating. As part of that
process, Moody's would look for more progress in addressing
upcoming maturities through 2015 and its ability to refinancing its HoldCo
debt (at September 30, 2011, this PIK debt had a value of
$663 million and is accreting at 11% per year). Conversely,
if the company's financial performance does not improve from third quarter
2011 levels in 2012 or cash and revolver availability falls, or
appears likely to fall, significantly below $200 million
for a sustained period, the B3 CFR would come under pressure.
The B3 Corporate Family Rating (CFR) continues to be constrained by MPM's
elevated leverage and weak credit metrics, which outweigh its strong
business profile and improved maturity schedule. As a result of
the softening demand and high raw materials prices, the 2011 operating
performance will underperform that of 2010 and will challenge credit metrics
more than previously expected. Year end 2011 is anticipated to
conclude with Net Debt/EBITDA over 8.0x and Retained Cash Flow/Net
Debt under 5%. The aforementioned ratios reflect Moody's
Global Standard Adjustments, which include the capitalization of
pensions and operating leases, as well as MPM's HoldCo PIK debt
($682 million at year end 2011). Moody's also noted that
MPM's parent company Momentive Performance Materials Holdings LLC has
filed a registration statement with the SEC for an initial public offering.
If IPO proceeds were used to repay a significant amount of debt (>$600
million) this could also positively impact the company's credit rating.
MPM's good liquidity is supported by the company's cash balance
of $250 million and the expectation for positive free cash flow
generation over the next four quarters. Maturities of long term
debt will become a greater concern by the end of 2012; maturities
are $215 million in 2013, $300 million in 2014,
and $840 million in 2015.
Ratings affirmed:
Momentive Performance Materials Inc.
Corporate Family Rating at B3
Probability of Default Rating at B3
Speculative grade liquidity rating at SGL-2
Guaranteed senior secured term loan due 2013 at Ba3 (LGD2, 12%)
Guaranteed senior secured revolver due 2014 at Ba3 (LGD2, 12%)
Guaranteed senior secured term loan due 2015 at Ba3 (LGD2, 12%)
Guaranteed senior secured 2nd lien notes due 2014 to B2 (LGD3, 35%)
from B2 (LGD3, 37%)
Guaranteed senior unsecured notes due 2021 to Caa1 (LGD4, 58%)
from Caa1 (LGD4, 60%)
Senior subordinated notes due 2016 to Caa2 (LGD5, 85%) from
Caa2 (LGD5, 86%)
Please see ratings tab on the issuer/entity page on Moodys.com
for the last credit rating action and the rating history.
The principal methodology used in rating Momentive was the Global Chemical
Industry Methodology published December 2009. Please see the Credit
Policy page on www.moodys.com for a copy of this methodology.
Momentive Performance Materials Inc., headquartered in Albany,
New York, is the second largest producer of silicones and silicone
derivatives worldwide. The company has two divisions: silicones
(which accounted for >90% of revenues) and quartz. Silicones,
or more accurately polymerized siloxanes or polysiloxanes, are mixed
inorganic-organic polymers that are used in a wide variety of industrial
and consumer applications including agriculture, automotive,
electronics, healthcare, paper , personal care,
textiles and sealants (the most recognizable application is for bathroom,
kitchen and window sealants around the home). Revenues in for the
LTM ending September 30, 2011 were $2.7 billion.
Momentive Performance Materials Inc. is an indirect wholly-owned
subsidiary of Momentive Performance Materials Holdings LLC (MPMH),
headquartered in Columbus Ohio. An affiliate of Apollo Management
is the majority owner of MPMH.
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Moody's considers the quality of information available on the rated
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a rating.
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the rating.
John Rogers
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's changes Momentive Performance's outlook to stable
No Related Data.
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