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Rating Action:

Moody's revises outlook for INEOS Group to positive

01 Jul 2021

London, 01 July 2021 -- Moody's Investors Service ("Moody's") today affirmed Ineos Group Holdings S.A. (INEOS) corporate family rating (CFR) at Ba3 and probability of default rating (PDR) at Ba3-PD. Concurrently, Moody's affirmed the Ba2 ratings of Ineos US Finance LLC's guaranteed senior secured term loan facilities due March 2024 and Ineos Finance plc's guaranteed senior secured term loan facilities due March 2024 and October 2027, as well as Ineos Finance plc's Ba2 guaranteed senior secured notes due November 2025, March 2026 and May 2026. Further, Moody's affirmed the B2 ratings on INEOS' guaranteed senior unsecured notes due 2024. The rating outlook on all three entities was changed to positive from negative.

RATINGS RATIONALE

Today's action reflects Moody's recognition that INEOS's large and diversified business with many leading market positions has been recovering faster than previously anticipated by the agency and will continue its positive performance trajectory for the remainder of 2021 and likely in 2022 as well. The company posted a dramatic improvement in performance since the trough in Q2'20 when EBITDA reached only €260 million; in both Q4'20 and Q1'21 EBITDA exceeded year-over-year comparisons with Q1'21 EBITDA of €706 million almost double Q1'20 EBITDA of €365 million. This growth was underpinned by the broader economic recovery from the pandemic, particularly in the construction and autos segments, and despite adverse weather conditions in the US in Q1'21. Moody's further expects the commodity chemical markets for INEOS' key products such as ethylene, propylene, polyethylene and polypropylene, among others, to sustain positive momentum as post-pandemic recovery continues.

In line with improving performance, INEOS' credit profile has strengthened with leverage reducing to 4.4x in Q1'21 from 5.9x in Q2'20 and RCF/debt increasing to 18% in Q1'21 from 11.7% in Q2'20. Moody's projects INEOS' leverage to reduce further to 3.7x in 2021 while the agency expects its RCF/debt to reach 22% in 2021.

Counterbalancing these positives, INEOS' rating is constrained by the endemic cyclicality of the commodity chemicals business, broad-based increases in raw material, transportation and energy costs in recent months and a history of large shareholder distributions, although the company discloses an overall financial policy of net leverage below 3.0x through the cycle.

INEOS' ratings continue to be underpinned by its robust business profile, reflecting its (1) leading market position as one of the world's largest chemical groups across a number of key commodity chemicals; (2) vertically integrated business model, which ensures that the company can capture margins across the whole value chain and benefit from economies of scale; and (3) well-invested production facilities, with most of them ranking in the first or second quartile on the regional industry cost curve. The rating also reflects the cyclicality of commodity chemical markets and the group's exposure to volatile raw material prices.

LIQUIDITY

INEOS's liquidity position is good. At 31 March 2021, the group held cash balances of approximately €1,459 million. In addition, it had over €600 million available under its €800 million receivables securitisation facility, which matures in December 2022. The company does not have other bank facilities such as an RCF in place; however, the business is expected to be cash generative in the next 12-24 months.

STRUCTURAL CONSIDERATIONS

INEOS's outstanding rated debt instruments fall into two main categories: (1) senior secured debt rated Ba2, one notch above the Ba3 CFR, and consisting of term loans due 2024 and 2027 and senior secured notes due in 2025 and 2026; and (2) senior unsecured notes due in 2024 which are rated B2, two notches below the Ba3 CFR, reflecting their subordinated ranking in the capital structure.

RATING OUTLOOK

The positive rating outlook reflects Moody's expectation that INEOS' credit profile will improve in tandem with its strengthening performance while its liquidity remains satisfactory and the company pursues a more consistently conservative financial policy.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Further positive pressure on the rating may arise if (i) retained cash flow to debt is consistently above 20%; (ii) Moody's-adjusted total debt to EBITDA is sustained below 4x; and (iii) INEOS maintains good liquidity. Furthermore, a consistently prudent approach to balancing shareholder and debtholder interests would be important for an upgrade.

Conversely, the ratings could come under downward pressure if (i) Moody's-adjusted total debt to EBITDA is over 5x and retained cash flow to debt is below 15% for a prolonged period of time; (ii) the group's liquidity profile weakens; or (iv) INEOS chooses to make any further material dividend distributions such that its leverage levels become elevated.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Chemical Industry published in March 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1152388. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

INEOS Group Holdings S.A. was established in 1998 via a management buy-out of the former BP petrochemicals asset in Antwerp, which was led by Mr. Ratcliffe, chairman of INEOS Group Holdings S.A. The group has subsequently grown through a series of acquisitions and at the end of 2005 acquired Innovene Inc., a 100% subsidiary of BP, in a $9 billion buy-out, transforming INEOS into one of the world's largest chemical companies (measured by turnover). In 2020, INEOS reported consolidated revenues of €11.3 billion and EBITDA before exceptionals of €1.5 billion.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Maria Maslovsky
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Mario Santangelo
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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