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27 Aug 2010
$225 million of new rated debt affected
New York, August 27, 2010 -- Moody's Investors Service (Moody's) raised Innophos Holdings,
Inc.'s (Innophos) Corporate Family Rating (CFR) to Ba2 from
Ba3 as a result of the meaningful reduction in debt and expectations for
strong operating results. We also assigned Ba2 ratings to the $125
million senior secured first lien revolving credit facility due 2015 and
$100 million term loan due 2015. The proceeds from the term
loan and drawings under the revolver will be used to repay the $190
million 8.875% sr. subordinated notes that are in
the process of being called and replace the $65 million revolving
credit facility due 2013. The SGL-1 Speculative Grade Liquidity
rating was affirmed. The outlook is stable.
The following summarizes the ratings activity.
Innophos Holdings, Inc.
Corporate Family Rating -- Ba2 from Ba3
Probability of Default Rating -- Ba2 from Ba3
$125mm Sr Sec Revolving Credit Facilities due 2015 -- Ba2
$100 mm Sr Sec Term Loan due 2015 -- Ba2 (LGD4, 50%)
Speculative grade liquidity rating -- SGL-1
Ratings outlook -- Stable
$190mm 8.875% Sr subordinated notes due 2014 -
Ba3 (LGD5, 79%) from Ba3 (LGD4, 59%)
The rating on the subordinated notes will be withdrawn upon redemption
of the notes.
The upgrade of the CFR to Ba2 from Ba3 reflects Innophos' solid financial
performance (despite significant macroeconomic headwinds in 2009 and the
loss of a major customer of its Mexican operations), debt reduction
and low leverage for its rating category, stable EBITDA margins,
strong financial strength and cost position metrics, positive resolution
of arbitration with its primary phosphate rock supplier to its Mexican
subsidiary, and a continuation of recovery in sales volumes.
The rating incorporates the expectation that the company will maintain
a secure supply of phosphate rock for its Mexican operations after its
contract with the current supplier (OCP) expires in September 2010.
Additionally, the proposed Senior Secured First Lien Credit Facilities
provide Innophos with an improved financial structure with the ability
to prepay the debt without penalties, extended maturities,
lower interest expense and a larger revolving credit facility that is
not subject to a borrowing base.
The company continues to benefit from demand in many of its key markets,
which are not highly cyclical (e.g., food & beverage,
consumer products, etc.), and the continuing ability
to pass through raw material cost increases; and thereby has been
successful in generating healthy free cash flow from operations.
However, the CFR is constrained by the company's modest size
(revenue base is less than $750 million), expected limited
sales growth opportunities in its current markets and other business risks
stemming from its narrow product portfolio, reliance on outside
suppliers of phosphate rock or merchant green acid, limited operating
diversification and legal issues. Additionally, it has experienced
volatility in its margins and may need to spend capital or do acquisitions
to achieve attractive growth rates.
With the recent reduction in debt and proposed debt issuance there is
little negative pressure on Innophos' ratings at this time.
However, the ratings could come under negative pressure if volumes
and pricing trends reverse dramatically causing sustainable decline in
margins, the company were unable to continue to generate positive
operating cash flow, liquidity declined significantly, unexpected
negative developments occur in the Mexican tax claims litigation or if
the company was not successful in maintaining an economical and secure
supply of phosphate rock for its Mexican operations.
The short term liquidity rating of SGL-1 reflects our expectation
that Innophos will have excellent liquidity over the next 12 months,
supported by its cash balances ($67.1 million as of June
30, 2010), positive free cash flow, availability under
its revolving credit facility, and flexibility under its financial
covenants. The proposed $225 million senior secured credit
facility will include a $125 million five year revolving credit
facility with approximately $50 million of availability after the
refinancing of the $190 million senior subordinated notes due 2014.
The company has historically generated positive free cash flow that benefited
from low capital expenditures compared to its depreciation and moderate
use of cash for working capital requirements (the majority of the company's
markets are not seasonal).
Moody's last rating action for Innophos was on March 29, 2010,
when Moody's changed Innophos' outlook to positive from stable,
and affirmed its Ba3 CFR and SGL-1 Speculative Grade Liquidity
The principal methodology used in rating Innophos Holdings, Inc.
was Global Chemical Industry rating methodology published in December
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.
Innophos Holdings, Inc. (Innophos), a publicly traded
company, is the parent company of Innophos Investments Holdings,
Inc., which owns 100% of Innophos, Inc.
Innophos, Inc. is the largest North American manufacturer
of specialty phosphate salts, acids and related products serving
a diverse range of customers across multiple applications, geographies
and channels. Innophos offers a broad suite of products used in
a wide variety of food and beverage, consumer products, pharmaceutical
and industrial applications. Headquartered in Cranbury, New
Jersey, the company has plant operations in the US, Canada
and Mexico. Revenues for the twelve months ending June 30,
2010, were $662 million.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service's information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's Investors Service adopts all necessary measures so that the information
it uses in assigning a credit rating is of sufficient quality and from
reliable sources; however, Moody's Investors Service does not
and cannot in every instance independently verify, audit or validate
information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's raises Innophos' CFR to Ba2 from Ba3; rates new debt Ba2
250 Greenwich Street
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