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18 Nov 2008
Moody's downgrades Ineos' Corporate Family Rating to B3 under review for further downgrade
London, 18 November 2008 -- Moody's Investors Service has today downgraded the Corporate Family Rating
of Ineos Group Holdings plc ("Ineos" or the "company") to B3 from B1,
the senior first lien facilities were downgraded to B2 from Ba3,
the second-lien facilities were downgraded to Caa2 from B3 and
the senior guaranteed notes and legacy notes at Ineos Vinyls were downgraded
to Caa2 from B3.
The ratings were also placed under review for further downgrade following
the announcement made by the company on 17 November 2008 that it has initiated
discussions with its senior creditors to obtain a waiver for some of its
financial covenants. Moody's notes that following the rapid
decline in oil prices, the company's reported EBITDA is likely
to be further affected by a significant negative inventory holding adjustment,
which is likely to restrict the headroom under some of the company's
financial covenants. As part of the review, Moody's
will monitor the outcome of the waiver discussions with the senior lenders,
and will also cover (a) the likely evolution of the credit profile of
Ineos in the medium term and (b) Ineos ability ultimately to maintain
sufficient headroom under the financial covenants and availability of
any cure measures to support the company's compliance with covenants
through a downturn in the cycle, as well as (c) the group's
liquidity position pending resolution of the potential covenant breach
with the senior lenders.
The downgrade of the ratings takes into account the company's elevated
leverage and the resulting limited financial flexibility, exacerbated
by the conditions of the current cyclical downturn and unusually high
volatility in feedstock prices. The positioning of the rating in
the single-B rating category will need to be supported by the demonstrated
ability of the company to maintain through a downturn in the cycle sufficient
headroom under its covenants, to be agreed with its senior lenders,
while the company is expected to remain at least FCF neutral in the medium
term. Moody's notes that the company's working capital
facility is part of the senior secured facilities and is also subject
to the financial covenants. Should the operating performance of
the company deteriorate substantially further, Moody's may review
its assumptions behind the corporate family recovery rates.
Moody's nevertheless notes that Ineos's performance in the nine months
of 2008 was influenced by a number of one-off events, such
as a strike at its Grangemouth facilities and a fire at the ethylene pipeline
in Koln, as well as the adjustment of the cost of inventory in 3Q
3Q 2008. The performance also reflected some structural pressure
on O&P margins in Europe that to a certain extent began to correct
during the last quarter of 2008. While the underlying performance
is expected to remain broadly in line with the expectation for the business
in the downturn of the cycle, the volatility in the raw material
prices, as well as the on-going de-stocking and volume
reductions are likely to substantially affect the reported EBITDA for
Moody's has previously indicated that a deterioration in the group's cash
flow debt coverage metrics are likely to put negative pressure on the
current ratings. Moody's estimates FFO + Interest /
Interest to likely reach below x 1.3 on 2008 LTM basis (while at
the end of 3Q 2008 the metric still remains at x2.0 times).
Looking ahead, Moody's expects the group to remain cash flow generative
through the downturn of in the cycle following substantial reduction in
the fixed costs and acknowledging some flexibility in delaying expansionary
CAPEX in the medium term.
At the end of September 2008, the company reported c.EUR
135 million in availability under its working capital facility and some
availability under its securitization facility, as well as EUR 1.3
billion in cash balances. Moody's is also notes that pending the
resolution of the consent request, the company's constrained
headroom under the group's financial covenants may potentially raise liquidity
The following ratings are affected by the rating action:
Ineos Group Holdings plc:
- Corporate Family Rating: B3
- EUR 1,750 m and USD 750 m 2016 senior g-teed notes
-- Caa2 / LGD 5 (89);
Ineos Holding Limited
- EUR 4,310 m and USD1,930 m first-lien senior
g-teed bank facilities -- B2/ LGD 3 (34);
- EUR 650 m second lien senior loans -- Caa2 / LGD 5 (79);
Ineos Vinyls Finance plc
- EUR 160 m senior g-teed notes -- Caa2 / LGD 6 (96).
Ineos Group Holdings plc is a diversified and integrated chemicals group
headquartered in Southampton, the United Kingdom. Ineos reported
2007 Revenues of EUR 27.5 billion and EBIT of EUR 1.2 billion.
David G. Staples
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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