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Rating Action:

Moody's places Albemarle's Ratings on Review for Downgrade

13 Apr 2020

New York, April 13, 2020 -- Moody's Investors Service, ("Moody's") placed the Baa2 senior unsecured ratings and the Prime-2 commercial paper rating of Albemarle Corporation ("Albemarle") on review for downgrade. The backed senior unsecured ratings for Albemarle New Holdings GmbH and Albemarle Wodgina Pty Ltd. are also placed on review for downgrade. The outlook on all ratings has been changed to ratings under review (RUR) from stable.

"Moody's placed Albemarle's ratings on review for downgrade due to the company's already stressed metrics and to reflect the uncertainty in many of the company's end markets caused by the impact from the coronavirus," according to Joseph Princiotta, SVP at Moody's and lead analyst for Albemarle.

On Review for Downgrade:

..Issuer: Albemarle Corporation

....Senior Unsecured Commercial Paper, Placed on Review for Possible Downgrade, currently P-2

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Baa2

..Issuer: Albemarle New Holdings GmbH

....GTD Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Baa2

..Issuer: Albemarle Wodgina Pty Ltd.

....GTD Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Baa2

Outlook Actions:

..Issuer: Albemarle Corporation

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Albemarle New Holdings GmbH

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Albemarle Wodgina Pty Ltd.

....Outlook, Changed To Rating Under Review From Stable

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

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The chemical sector in general, and the lithium, bromine and refinery catalyst subsectors in particular have been affected by the shock, especially the auto and certain industrial end markets given the sensitivity to consumer demand and economic activity. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Today's action, in part, reflects the impact on Albemarle of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.

ALB's credit profile was already stressed for the ratings coming into 2020 from the debt financed MARBL acquisition that closed in November 2019, and from the drop in the market price of battery grade lithium products. The impact from COVID-19 on Auto OEM production and the delayed impact on the battery market and lithium supply chain has the potential to pressure EBITDA and metrics further. In addition, ALB's catalyst segment, which sells to refineries that produce transportation fuels, is being pressured by fewer miles driven, while the bromine segment, that produces flame retardant and oil drilling products, also faces end market pressures and uncertainties, which may be offset by tight supply.

Free cash flow and liquidity are also a concern given ALB's aggressive capex and expansion plans over the next two years. Coming into the year Moody's forecast free cash flow to be negative in the amount of roughly several hundred million dollars, with the short fall to be financed with asset sales proceeds. Current market conditions, however, have caused ALB to temporarily pause divestiture efforts, while ALB's revolver faces tightness in the gross leverage covenant and full utilization of the facility is in question without an amendment.

The review will assess the impact of COVID-19 on auto OEM markets and the lithium battery supply chain, the impact on ALB's other two segments, the success and nature of a covenant amendment, the company's options with respect to alternate sources of liquidity, and other possible cash conserving measures, including the capability and intent with respect to slowing the pace of capex, reducing operations if end market demand slows, and the ability to accelerate cost reduction efforts. A downgrade, if it were to occur, is unlikely to be more than one notch assuming the covenant is amended without adverse consequences, liquidity is adequate and the cash burn issue is fully resolved.

ESG risk and challenges for Albemarle are considered low. None of Albemarle's products are hydrocarbons that rely on crude-derived raw materials, and its three segments provide products with net positive environmental and social benefits: catalysts help refinery customers adhere to increasingly stringent air and fuel standards; bromine flame retardants are used in many end products, including fire safety products; and lithium is a key raw material in batteries used in electric vehicles, which should realize good global growth and will displace conventional internal combustion engines (ICEs) over time. Fewer ICEs should contribute, in theory, to a smaller global carbon footprint in powering automobiles.

Governance risks are generally less significant for large public companies like Albemarle that articulate their financial and operating strategy, ensure strict compliance and reporting and have transparent board structure and policies. The company's intent to explore options to conserve cash during these uncertain times, including the pace of capex and reducing operations, reflects favorably on corporate governance issues.

Albemarle's liquidity is adequate and consists of $613 million in balance sheet cash at year-end December 31, 2019, and $813 million availability under the $1.0 billion credit facility that matures in August 2024, although full use of this availability is in question and could be impeded by the covenant test in the absence of a covenant amendment. Liquidity is also offset by negative free cash flow expected in 2020 (due to extensive capex). The Prime-2 (P-2) short term rating (under review for downgrade) on the company's CP program is supported by the committed unused portion of the $1.0 billion credit facility. At December 31, 2019, CP usage was $187 million; outstandings under the credit facility were zero. The credit facility has one financial covenant -- a maximum consolidated leverage covenant of 3.5x, increasing to 4.0x for four consecutive quarters upon consummation of an acquisition. As mentioned, the company is expected to face tightness in the gross leverage covenant and full utilization of the facility is in question without an amendment.

Albemarle Corporation (Albemarle), headquartered in Charlotte, North Carolina, is a global producer of lithium and bromine products, catalysts (mostly for oil refining), and specialty chemicals including flame retardants and fine chemicals for use in a diverse set of end markets. Albemarle operates through the following business segments: Lithium, Bromine Specialties, and Catalysts. Revenues were approximately $3.6 billion for the twelve months ended December 31, 2019.

A downgrade would be likely if the leverage test in the bank revolver is not favorably resolved in the near term, or if there's not a clear path to bolster liquidity and mitigate the cash burn that Moody's currently forecasts for this year.

A downgrade would also be considered if actual or projected adjusted gross debt exceeds 4x and a path to improvement is not evident or likely in a reasonable timeframe and under reasonable scenarios.

Additional acquisitions that would add to liquidity and balance sheet stress would also likely have negative ratings consequences. The current ratings incorporate gross adjusted leverage in the mid to high 2x range, RCF/TD above 25%, and positive free cash flow.

An upgrade is not being considered at this time, but could eventually be considered once significant progress is made in its longer-term lithium growth plan, event risk subsides, RCF/TD exceeds 30% and gross adjusted leverage is falls below 2.5x, on a sustained basis.

The principal methodology used in these ratings was Chemical Industry published in March 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1152388. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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_1133569.

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.

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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