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Rating Action:

Moody's rates new bank credit facility and senior unsecured notes of Compass Minerals; affirms Ba3 CFR and Ba3-PD PDR

20 Nov 2019

New York, November 20, 2019 -- Moody's Investors Service ("Moody's") assigned Ba2 ratings to Compass Minerals International, Inc.'s ("Compass") new $300 million revolver due 2025 and new $400 million term loan due 2025. Moody's also assigned a B1 rating to the new $500 million senior unsecured notes due 2027 and upgraded the existing $250 million senior unsecured notes due 2024 to B1 from B2. The proceeds of the new debt will be used to pay off the existing revolver and the term loan. The existing revolver and term loan ratings will be withdrawn upon repayment. Moody's also affirmed Compass's Ba3 corporate family rating and Ba3-PD probability of default rating. The SGL-3 rating is unchanged. The outlook is stable.

Affirmations:

..Issuer: Compass Minerals International, Inc

.... Corporate Family Rating, Affirmed Ba3

.... Probability of Default Rating, Affirmed Ba3-PD

Upgrades:

..Issuer: Compass Minerals International, Inc

....Senior Unsecured Regular Bond/Debenture, Upgraded to B1 (LGD5) from B2 (LGD5)

Assignments:

..Issuer: Compass Minerals International, Inc

....Senior Secured Term Loan, Assigned Ba2 (LGD2)

....Senior Secured Revolving Credit Facility, Assigned Ba2 (LGD2)

....Gtd Senior Unsecured Notes, Assigned B1 (LGD5)

Outlook Actions:

..Issuer: Compass Minerals International, Inc

....Outlook, Remains Stable

The ratings are subject to the transaction closing as proposed and receipt and review of the final documentation.

RATINGS RATIONALE

The Ba3 corporate family rating (CFR) reflects the company's strong competitive position in the North American salt industry, attractive EBITDA margins and ability to generate robust operating cash flow. The rating also incorporates Moody's expectations for an increase in the de-icing salt volumes and sales during the upcoming 2019-2020 winter season, projected productivity gains at the Goderich mine and moderate improvement in the plant nutrition business. The rating is constrained by the relatively unpredictable nature of the deicing salt and plant nutrition businesses, lack of scale and geographic reach as well as consistent prioritization of shareholders returns in the form of dividends over debt reduction. The change in notching of the instrument ratings reflects the increased amount of unsecured debt and decreased amount of secured debt in the capital structure as well as the improving production and cost profile of the Goderich mine, which serves as collateral for the secured debt.

Regional markets served by the company's deicing salt business have largely evidenced a second consecutive season of harsh winter conditions during the 2018-2019 winter. This resulted in a strong 2019 salt bidding season for Compass with an 18% increase in the awarded volumes and higher pricing as compared to the prior year. Furthermore, the Goderich mine is gradually ramping up following a strike-related production curtailment last year and an annual plant shutdown in March 2019. This will help offset sluggish performance in the company's plant nutrition business. Excessive rainfall in spring 2019 negatively impacted the planting season, logistics in the US and the results of the company's Plant Nutrition North America segment. Plant Nutrition South America segment has been negatively impacted by trade tensions and lower purchases of Brazilian soybeans by China in large part due to the spread of African swine fever in China and the ensuing lower demand for the feedstock.

Moody's adjusted Debt/EBITDA has remained consistently above 4.5x since the acquisition of Produquimica in 2016. Free cash flow has also been negative over the same time frame. Moody's expects adjusted EBITDA to grow to about $360 million in 2020 and adjusted Debt/EBITDA to decline from 4.7x as of September 31, 2019 towards 4.0x in the next 12-18 months.

Compass has adequate liquidity, as reflected by its SGL-3 rating. Compass had $24 million of cash on hand as of September 30, 2019. We expect the company to generate moderate free cash flow in 2020 assuming normal winter. At the close of the transaction, the company is expected to have $173 million outstanding on its new $300 million revolving credit facility, which expires in 2025. We expect the company will continue to rely on the revolver for seasonal working capital swings as well as continued capital expenditure projects. The credit agreement includes a financial maintenance covenant of maximum adjusted total net leverage ratio of 4.75x from closing through December 31, 2020, stepping down to 4.50x thereafter through maturity. We expect Compass Minerals to be in compliance with the covenant over the next 12-18 months, although with a modest cushion. The revolver also has a minimum interest coverage ratio covenant of 2.25x, which the company is expected to remain in compliance with.

The stable outlook assumes that Moody's-adjusted leverage will decline modestly to below 4.5x with moderate free cash flow over the next 12-18 months.

By the nature of its business, deriving a large portion of its revenues from salt mining, Compass faces a number of ESG risks typical for a company in the mining industry, including compliance with stringent health, safety and environmental regulations. However, the ESG risks for salt miners are generally lower than those of base and precious metals producers because salt mining is considered less hazardous and requires less processing (crushing and grinding). The company is exposed to the risk of labor strikes as experienced at its Goderich mine in 2018. The governance risk is above average given the elevated leverage, consistent prioritization of shareholders returns in the form of dividends over debt reduction and operations in emerging markets with less stringent governance standards such as Brazil.

Moody's would consider upgrading the rating if the company improved the adjusted leverage to below 3.5x on a sustained basis and made progress on reducing gross debt.

Moody's would likely consider a downgrade of the ratings if adjusted leverage were to remain elevated above 5.0x, or there is a substantial deterioration in liquidity.

The principal methodology used in these ratings was Chemical Industry published in March 2019. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Overland Park, Kansas, Compass Minerals International, Inc. (Compass Minerals) is a leading North American producer of salt used for highway deicing, agriculture applications, water conditioning, and other consumer and industrial uses as well as magnesium chloride used for deicing and road stabilization. The company is also a significant specialty fertilizer manufacturer, including SOP (sulfate of potash) and micronutrients in the US, Canada and Brazil. For the last twelve months ended September 30, 2019, Compass Minerals generated net sales (gross revenues less shipping and handling) of about $1,163 million.

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
Vice President - 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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