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Global Credit Research - 20 Dec 2010
EUR750 million of rated outstanding debt securities affected
Frankfurt am Main, December 20, 2010 -- Moody's has today changed its outlook to positive from stable on
all outstanding ratings of Evonik Industries AG. All outstanding
ratings remain unchanged.
The change in outlook was prompted by Evonik Industries' announcement
of a sale of a 51% stake in its energy business for an enterprise
value of EUR3.77 billion as well as by the group's continued
robust operating performance since we assigned our rating in September
The sale of a 51% stake in Steag and the full deconsolidation of
the business is credit positive (remaining 49% stake will be equity
accounted and is expected to be sold over the medium term). The
deleveraging impact from the sale will be modest (pro forma of the sale
and full deconsolidation of Steag RCF / Net debt is estimated at around
25% versus approximately 22% on an LTM September 2010 basis)
but the transaction will de-risk the business profile of the group
as Steag is seen as a relatively small utility with a very limited fuel
mix and modest geographical diversification. Moody's also
notes that the energy business is relatively capital intensive and has
to some extent constrained the capital allocation to Evonik Industries'
chemicals franchise. Lastly the deconsolidation of Steag is further
evidence that the management of Evonik Industries continues to address
structural subordination issues, an expectation that Moody's
had factored in the absence of notching of the senior unsecured instrument
Evonik Industries' liquidity position is strong. The group
had EUR1.3 billion of cash & marketable securities plus EUR200
million in near cash assets on balance sheet at 30th September 2010.
In addition Evonik Industries has access to a fully undrawn EUR1.5
billion revolving credit facility with ample covenant headroom.
Main liquidity needs over the next twelve months mainly consisting of
capex, working capital requirements and dividends are expected to
be funded from operating cash flows.
Continued strong operating performance coupled with a prudent balance
sheet management leading to Adjusted Net Debt / EBITDA of below 3.5x
and Adjusted RCF / Net Debt of above 15% on a sustainable basis
would exert positive pressure on the ratings.
A sharp deterioration in the operating environment and / or shift in the
group's organic and external growth strategy leading to sustained negative
free cash flow generation and / or a deterioration in Adjusted Net Debt
/ EBITDA to sustainably above 4.5x would lead to negative pressure
on the ratings. The agency would also expect Evonik to maintain
Adjusted RCF / Net Debt in the low double digit to avert negative pressure
on the ratings.
The last rating action on Evonik Industries AG was on 21 September 2010,
when Moody's assigned a first time Ba1 Corporate Family rating and a Ba1
instrument rating to EUR750 million of Senior Unsecured Notes issued by
Evonik Industries AG.
The principal methodologies used in rating Evonik Industries AG were Global
Chemical Industry published in December 2009, and Loss Given Default
for Speculative-Grade Non-Financial Companies in the U.S.,
Canada and EMEA published in June 2009. Other methodologies and
factors that may have been considered in the process of rating this issuer
can also be found on Moody's website.
Evonik Industries AG, headquartered in Essen, Germany,
is the holding company of the Evonik Group, which holds interests
in chemicals (considered as core business), energy and real estate
businesses. While the roots of the company date back to 1843,
the group in its current legal form was established in 2007 when the so-called
white division of RAG AG was separated from the mining activities of the
group and incorporated under EI. Evonik is majority owned by RAG
Foundation, which was set up to fund liabilities relating to the
termination of RAG's mining activities until 2018. Funds of the
financial investor CVC Capital Partners have acquired a 25,01%
stake in EI in 2008. EI reported revenues of EUR13.1 billion
and an EBITDA of EUR2 billion for the fiscal year ended 31st December
2009. The company employed 38,361 people at fiscal year-end
Frankfurt am Main
Vice President - Senior Analyst
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
David G. Staples
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Deutschland GmbH
Moody's changes its outlook on Evonik Industries to positive (CFR: Ba1)
An der Welle 5
Frankfurt am Main 60322
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
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