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Rating Action:

Moody's downgrades Ferroglobe's PDR to Ca-PD; affirms CFR and instrument ratings

04 Feb 2021

London, 04 February 2021 -- Moody's Investors Service ("Moody's") has today downgraded to Ca-PD from Caa1-PD the probability of default rating (PDR) of Ferroglobe PLC ("Ferroglobe", or "the company"). Concurrently, Moody's affirmed the company's Caa1 corporate family rating (CFR) and the Caa2 instrument ratings on its guaranteed senior unsecured notes due March 2022. The outlook on all ratings remains negative.

RATINGS RATIONALE

The downgrade of the PDR to Ca-PD from Caa1-PD follows Ferroglobe's announcement on 01 February 2021 of a contemplated restructuring of its capital structure[1], which - if executed as planned - would be viewed by Moody's as a distressed exchange. Moody's expects to append the "LD" designation to the PDR at the closing of the transaction.

The ratings of Ferroglobe's outstanding $350 million senior unsecured notes due March 2022 have been affirmed at Caa2, reflecting the expected exchange at par following the proposed transaction, as well as the subordinated ranking of the notes with respect to the two asset-based facilities, the $100 million North American ABL revolver and the €60 million non-recourse factoring program. The notes remain, therefore, rated one notch below the CFR.

The proposed transaction entails the exchange of the existing senior unsecured notes at par with new senior secured notes with maturity in December 2025. Current noteholders shall also receive 3.75% of the equity in Ferroglobe. The transaction also foresees the issuance of a new $60 million super-senior secured loan maturing in June 2025 and $40 million of equity increase. After accounting for transaction-related costs of $26 million, Ferroglobe's liquidity would improve by $74 million.

Moody's regards the transaction, which would not lead to an immediate loss for existing bond holders, as a means for the group to address the refinancing of the upcoming maturities and to avoid a disorderly default on its current debt structure, which Moody's still considers unsustainable.

Upon completion of the transaction, Moody's expects to reassess the rating positioning of Ferroglobe, with an expected strengthened liquidity and debt maturity profile on the back of the proposed debt maturity extension and new capital injection.

RATIONALE FOR OUTLOOK

The negative outlook reflects the possibility of a downgrade if the proposed debt restructuring could not be executed as planned, resulting in a persistently unsustainable capital structure with increasing risk of a disorderly default with a potentially lower recovery for creditors. A stabilization of the outlook would require an improved liquidity profile and tangible signs of an improvement of Ferroglobe's operating performance.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

An upgrade of Ferroglobe's ratings is unlikely pending the execution of the debt restructuring, upon which Moody's will take into account the expected strengthening of the group's liquidity profile, combined with the progress in its operating performance. An upgrade of the CFR immediately upon execution of the proposed transaction is also considered unlikely at this stage as the transaction will not reduce Ferroglobe's debt level. As Moody's has said previously, it would consider upgrading the ratings over time if the company were able to improve its operating profitability and credit metrics with Moody's-adjusted gross debt/EBITDA of less than 6.0x and positive free cash flow (FCF) generation on a sustained basis.

The ratings could be downgraded should Ferroglobe fail to strengthen its liquidity situation. Even if Ferroglobe improves its liquidity, the ratings could be downgraded in case of a protracted market downturn, preventing any significant recovery in the company's operating profitability in the next six to 12 months. In particular, a downgrade could be triggered if its Moody's-adjusted gross debt/EBITDA remains above 8.0x for a prolonged period.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Manufacturing Methodology published in March 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1206079. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

COMPANY PROFILE

Headquartered in London, Ferroglobe PLC is a leading producer of silicon metal and silicon/manganese alloys, with revenue of $1.2 billion in the last twelve months ended September 2020. Ferroglobe, which is 54% owned by Grupo Villar Mir, S.A.U. (Grupo Villar Mir), was formed in December 2015 through the combination of the Europe-based Ferroatlántica, a subsidiary of the Spanish Villar Mir industrial conglomerate, and the US-based competitor Globe Specialty Metals Inc. The company is listed on the NASDAQ and had a market capitalisation of $0.5 billion as of 01 February 2021.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

REFERENCES/CITATIONS

[1] Form 8-K (SEC) 02-Feb-2021

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.

Sven Reinke
Senior Vice President
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Peter Firth
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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