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Rating Action:

Moody's places Rain Carbon Inc's ratings (B1 CFR) under review for downgrade

12 Sep 2019

New York, September 12, 2019 -- Moody's Investors Service ("Moody's") placed under review for downgrade Rain Carbon Inc's (RCI) B1 Corporate Family Rating, B1-PD probability of default rating, the ratings of Ba3 senior secured revolving facility and B2 senior secured 2nd lien notes as well as the Ba3 rating of senior secured Euro term facility of Rain Carbon GmbH, a wholly-owned subsidiary of RCI.

"The review reflects softening market conditions in US, Europe and Asia, particularly in aluminum and automotive sectors, which in conjunction with petcoke import restrictions implemented by India and RCI's capex requirements, will likely constrain EBITDA and free cash flow generation and limit the company's ability to reduce currently high leverage", said Botir Sharipov, Vice President and lead analyst for Rain Carbon Inc.

On Review for Downgrade:

..Issuer: Rain Carbon GmbH

....Gtd. Senior Secured Term Loan B, Placed on Review for Downgrade, currently Ba3 (LGD3)

..Issuer: Rain Carbon Inc.

.... Probability of Default Rating, Placed on Review for Downgrade, currently B1-PD

.... Corporate Family Rating, Placed on Review for Downgrade, currently B1

....Gtd. Senior Secured Bank Credit Revolving Facility, Placed on Review for Downgrade, currently Ba3 (LGD3)

....Gtd. Senior Secured 2nd Lien Regular Bond/Debenture, Placed on Review for Downgrade, currently B2 (LGD5)

Outlook Actions:

..Issuer: Rain Carbon GmbH

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

..Issuer: Rain Carbon Inc.

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

RATINGS RATIONALE

The review will focus on the expected operational performance against the backdrop of broad global economic slowdown and specific challenges faced by RCI. The review will evaluate the company's capex spending required to complete two growth projects in India and Germany and the potential for EBITDA recovery to levels that could support, on a sustained basis, positive FCF generation and meaningful deleveraging over the next 12-18 months. An important part of the review will be an assessment of alternative strategies RCI is undertaking to mitigate the fallout of the Indian petcoke restrictions that are adversely impacting its Indian and US operations and overall financial performance.

RCI's LTM adjusted debt/EBITDA, as measured by Moody's, has climbed to 5.6x as of June 30, 2019 from about 4x at the end of 2018 and under 3x a year ago. Based on the company's recent performance, persistent weakness in the automotive and aluminum sectors which are key end-markets for RCI, lack of visibility on the resolution of the Indian petcoke restrictions and our expectations for EBITDA and cash flow generation over the next several quarters, leverage, as measured by the debt/EBITDA ratio (including Moody's standard adjustments) could decline modestly but remain elevated at around 5x.

RCI faces a number of meaningful ESG risks as a producer of carbon-based products and a supplier of key input ingredients for the primary aluminum industry. India's petcoke import restrictions were driven by environmental concerns, specifically greenhouse gas emissions associated with the use of petcoke as fuel. These restrictions have materially impacted the company's operating and financial performance. Furthermore, one of RCI's Canadian subsidiaries and other companies are being currently sued by several cities in Minnesota over the cost of cleaning up the allegedly polluted local stormwater ponds. The Plaintiffs claim that the refined coal tar products made by RCI's Canadian subsidiary and other Defendants that were used in the past in pavement sealants have contaminated the cities' stormwater ponds. While the lawsuit is in early stages and the final outcome is highly uncertain, we believe it represents a material credit risk for RCI.

Rain Carbon Inc. has a good liquidity position as of June 30, 2019, supported by cash on hand of $112 million and $163 million of availability under the senior secured revolver maturing in 2023 and credit facilities available to fund working capital needs at the company's Indian operations.

Rain Carbon Inc. is an indirect wholly owned subsidiary of Rain Industries Limited, a company incorporated in India. The company is engaged in the business of manufacturing and sales of carbon products and advanced materials, including calcined petroleum coke (CPC), coal tar pitch (CTP), cogenerated energy, and other derivatives and downstream products of the coal tar distillation process. The company generated $1.76 billion in revenues during the LTM ended June 30, 2019.

The principal methodology used in these ratings was Steel Industry published in September 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

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.

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

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.

Botir Sharipov
VP-Senior Analyst
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

Brian Oak
MD - Corporate Finance
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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