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Rating Action:

Moody's reviews for downgrade the Ba2 ratings of K+S

05 Nov 2019

Frankfurt am Main, November 05, 2019 -- Moody's Investors Service ("Moody's") today placed on review for downgrade the Ba2 Corporate Family Rating (CFR) of K+S AG (K+S), the Ba2-PD probability of default rating (PDR) and the Ba2 rating assigned to its EUR500 million senior unsecured bond maturing in June 2022. The rating outlook has been changed to rating under review from stable.

RATINGS RATIONALE

RATIONALE FOR REVIEW FOR DOWNGRADE

Moody's has placed ratings on review to assess the impact from the company's September 2019 profit warning on leverage and cash flow generation. Moody's will also assess the information adequacy to maintain ratings.

K+S on September 23, 2019 said that it expects the reduction of fertilizer production for potassium chloride by up to 300,000 tonnes by the end of 2019 and that it would have a negative impact on 2019 EBITDA by up to EUR80 million. The company's latest 2019 EBITDA guidance in mid-August was in the range of EUR730 million to EUR830 million. Based on the EUR780 million midpoint of the range, the negative EBITDA impact of up to EUR80 million would lower EBITDA to around EUR700 million. Including Moody's adjustments our 2019 debt/EBITDA expectation is now around 5.5x, which is above Moody's guidance range of 4.0x-5.0x for the Ba2. Moody's previous expectation for 2019 leverage was 4.5x.

K+S is a non-participating issuer, which means that Moody's does not have access to non-public information. Following the company's announcement in May 2019 that it had refinanced its syndicated credit facility, Moody's has not had access to the credit documentation. This inhibits the rating agency's ability to independently verify the documentation and to fully assess the strength of K+S' liquidity. This includes whether financial covenants are present and -- in the event that financial covenants are present -- the covenant headroom in light of the deteriorating EBITDA. As a stock market listed company, the public financial disclosure of K+S is otherwise sufficient and allows for an analysis of the operating performance and the capital structure.

During the review Moody's will take into account the updates to the operating and financial performance for the first nine months of 2019 K+S publishes on November 14, 2019 as well as the revised guidance for 2019 that the company intends to release on that day. Moody's will also attempt to obtain information from the company in order to thoroughly assess the company's liquidity profile.

WHAT COULD CHANGE THE RATING UP / DOWN

Moody's could upgrade the ratings if the company established a track record of positive FCF generation and debt/EBITDA below 4.0x. Ratings could be downgraded if there is no visible trajectory to becoming FCF positive by 2020 and the inability to deleverage to below 5.0x.

PRINCIPAL METHODOLOGY

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.

COMPANY PROFILE

Headquartered in Kassel, Germany, K+S AG is one of the world's leading potash fertilizer producers and the world's largest supplier of salt products. The company operates six potash mines in Germany and commissioned Bethune plant in Canada in 2017, as well as numerous salt mines in Europe, North and South America. The company for 2018 reported consolidated sales of EUR4.0 billion, EBITDA of EUR606.3 million and an EBITDA margin of 15.0%. K+S on November 5, 2019 had a market capitalisation of approximately EUR2.5 billion.

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.

Items color coded in purple in this Press Release relate to unsolicited ratings for a rated entity which is non-participating.

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.

Martin Kohlhase
VP - Senior Credit Officer
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Matthias Hellstern
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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