London, 04 April 2011 -- Moody's Investors Service has today placed all ratings of Solvay S.A.
("Solvay") and its guaranteed subsidiaries on review for possible downgrade
following the announcement of its offer to acquire Rhodia S.A.
At the same time, all ratings of Rhodia S.A. ("Rhodia")
were placed on review for possible upgrade.
The proposed transaction assumes EUR 6.6 billion enterprise value
of Rhodia (implying c. 50% premium to the last market valuation
of the company) and would entail c. EUR 3.4 billion cash
payment that Solvay is expected to fund from the accumulated cash proceeds
from the earlier disposal of its pharmaceuticals business. At the
end of 2010, Solvay reported EUR 2.0 billion in cash and
further EUR 3.7 billion held in high quality short-term
investments.
The acquisition will also likely entail a significant refinancing effort.
The transaction includes the offer to purchase EUR 595 m 2014 convertible
notes issued by Rhodia S.A, which we expect to be funded
from Solvay's cash balances. In addition, Rhodia has several
outstanding bonds that benefit from change of control clauses.
These bonds include in particular:
- EUR 500 m 7% 2018 senior notes;
- EUR 1,100 m floating rates 2013 senior notes (only EUR
229m outstanding as at Dec. 2010 after partial early redemption);
- USD 400 m 67/8% 2020 senior notes;
The proposed transaction is recommended by the Boards of Directors of
both companies. Nevertheless, Moody's decision to place Solvay's
and Rhodia's ratings under review reflects the degree of uncertainty surrounding
the final details and execution of the proposed transaction.
The review will focus on :
(a) the assessment of the business profile of the combined entity.
The acquisition will substantially increase Solvay's size, product
diversification and boost its positions in high growth geographies,
including in Latin America and Asia. The enlarged portfolio is
expected to retain a significant exposure to matured and more commoditised
chemicals segments, suggesting a relatively high level of volatility
in earnings, characteristic to these markets.
(b) the assessment of the new growth platform and strategy, as well
as future investment and R&D needs, following the acquisition,
particularly in relation to the earlier stated focus on investments in
high value-added activities to drive future profitable growth;
(c) Solvay's financial profile following the acquisition, considering
a relatively high level of debt of the targeted company (measured by Moody's
on adjusted basis and taking into account significant pension liabilities
of Rhodia);
(d) the confirmation of the status of Rhodia S.A. bonds
in the new structure and the new liquidity funding arrangements,
as adjusted for the enlarged size of the combined operations; as
well as
(d) the integration timetable and risks, and the expected operating
and financial synergies and the operating outlook for the combined entity.
At this stage, Moody's expects that a downgrade of Solvay's ratings,
if the acquisition were to go ahead, would likely be limited to
one or two notches.
The following ratings are affected by this announcement:
Solvay S.A.
- EUR MTN programme - (P) A3
- 2018 EUR 300 m 4.63% medium term notes -
A3
- 2014 EUR 500 m 4.88% medium term notes -
A3
- 2018 EUR 200 m 4.63% medium term notes -
A3
- 2015 EUR 500 m 5% Belgian bonds - A3
Solvay Finance S.A.
- preferred stock EUR 500 m - Baa2
Solvay Finance B.V.
EUR MTN programme - (P)A3
Solvay Finance (America) Inc
- EUR MTN Programme - (P) A3
- Commercial paper - P-2
Rhodia S.A.
- Corporate family rating - Ba3 / LGD 4(50) / PD Ba3
- 2013 EUR 1,100 m floating rate senior notes - B1
/ LGD 4 (69)
- 2014 0.5% EUR 595 m convertible notes -
B1 / LGD 4 (69)
- 2018 7% EUR 500 m senior notes - B1 / LGD 4 (69)
- 2020 6 7/8% USD 400 m senior notes - (P)B1 / LGD
4 (69)
The principal methodology used in rating Rhodia S.A. and
Solvay S.A. was the 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.
Rhodia S.A., headquartered in Paris, France,
is a diversified chemicals company with leading market positions in chemical
intermediates (n°2 worldwide in Polyamide 6.6 ) and engineering
plastics (n°2 worldwide), as well as in other applications across
the chemicals value chain (n°1 worldwide in high performance silica).
For the fiscal year ended 31st December 2010, the company generated
consolidated revenues of EUR 5.226 million and reported a recurring
EBITDA of EUR905 million (EUR 4.031 million and EUR 487 million
for the fiscal year ended 31st December 2009).
Moody's last rating action on Rhodia S.A. was on 21 September
2010, when the rating agency assigned (P)B1 ratings to USD 400 million
new senior unsecured notes issued by the group. Moody's has changed
the outlook on Rhodia S.A. ratings from stable to positive
on 13 September 2010 to reflect Rhodia's improving business risk trends
and strengthening financial profile.
Based in Brussels, Solvay S.A. is an international
chemicals group. Following the disposal of its pharmaceuticals
business in the beginning of 2010, the group has focused on its
chemicals and plastics portfolio. The group enjoys leading global
market positions in several segments (such as soda ash, hydrogen
peroxide and electrochemistry products, as well as vinyls and some
specialty polymers). For the fiscal year ended 31st December 2010,
Solvay reported consolidated sales of EUR 7,109 million and recurring
EBITDA of EUR 1,051 million (EUR5,695 million revenues).
The last rating action on Solvay S.A. was 28 September 2009
when the rating agency affirmed the A3 senior unsecured rating of the
group with negative outlook following the announcement of the disposal
of the pharmaceuticals business and reflecting uncertainties about Solvay's
business risk profile should it make an acquisition.
London
Elena Nadtotchi
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Olivier Beroud
Managing Director
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's reviews Solvay A3 rating for downgrade, Rhodia's Ba3 rating for upgrade.