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Rating Action:

Moody's upgrades Celanese to Baa3

18 Jul 2016

Approximately $1.5 billion of unsecured debt affected

New York, July 18, 2016 -- Moody's Investors Service upgraded the senior unsecured rating of Celanese U.S. Holdings LLC to Baa3 from Ba2 following the establishment of a gross leverage target of 2.0x and the refinancing of its secured term loan and revolver with an unsecured term loan and revolver. Moody's had previously stated that these factors were preventing the company from an upgrade, despite having investment grade financial metrics and an investment grade business profile. Moody's also withdrew Celanese's Corporate Family Rating, Probability of Default rating, its Speculative Grade Liquidity rating and the senior secured ratings on its prior revolver and term loan. The rating outlook is stable. These actions conclude the review, which began on June 14, 2016 after the company first announced its new gross leverage target of 2.0x at an investor conference.

"The upgrade is tempered by a bolt-on acquisition driven growth strategy, which, adds a modest level of event risk. However, if it is successful, it should allow the company to grow significantly faster than GDP while improving profitability," stated John Rogers, Senior Vice President at Moody's and lead analyst on Celanese. "We expect that Celanese will continue to generate $500-800 million per year of free cash flow, which should fund these transactions and provide additional flexibility to undertake opportunistic share repurchases."

Ratings Upgraded:

..Issuer: Celanese U.S. Holdings LLC

.... Backed Senior Unsecured Regular Bond/Debenture, Rating upgraded to Baa3, from Ba2 (LGD5) on Review for Upgrade

..Issuer: Public Finance Authority

.... Backed Senior Unsecured Revenue Bonds, Rating upgraded to Baa3, from Ba2 (LGD5) on Review for Upgrade

Ratings Withdrawn:

..Issuer: Celanese Corporation

.... Probability of Default Rating, Rating Withdrawn, from Ba1-PD on Review for Upgrade

.... Corporate Family Rating, Rating Withdrawn, from Ba1 on Review for Upgrade

..... Speculative Grade Liquidity, Rating Withdrawn, from at SGL-1

..Issuer: Celanese U.S. Holdings LLC

....Senior Secured Bank Credit Facility, Rating Withdrawn, from Baa3 (LGD2) on Review for Upgrade

Outlook Actions:

..Issuer: Celanese Corporation

....Outlook, Changed To Rating Withdrawn From Rating Under Review

..Issuer: Celanese U.S. Holdings LLC

....Outlook, Changed To Stable From Rating Under Review

RATINGS RATIONALE

Celanese's upgrade to investment grade is based on the company's newly established financial policy of targeting 2.0x gross leverage on a sustained basis, as well as the refinancing of its secured debt with a new unsecured revolver and term loan. Despite management's fairly aggressive earnings growth targets and the potential for a number of bolt-on acquisitions, Moody's anticipates that management will have the financial flexibility to maintain its 2.0x gross leverage target (does not include Moody's standard adjustments). As of March 31, 2016, Celanese's gross leverage was1.9x, excluding Moody's adjustments, clearly consistent with their new policy. Moody's adjustments add roughly three quarter of a turn to leverage due to $1.1 billion of pension liabilities and $460 million of capitalized operating leases. As of the same date, Moody's credit metrics were 2.7x Debt/EBITDA and Retained Cash Flow/Debt (RCF/Debt) of 21%. Celanese also holds a substantial amount of cash, $716 million, as of March 31, 2016, a portion of which will likely go toward funding future acquisitions. Moody's does view this level of cash as a credit positive, but does not give the company full credit for the cash. On a Net Debt basis leverage is 2.2x and RCF/Debt is 25%.

At Celanese's investor day in December 2015, management discussed the need to ramp up new products introductions, continue to generate roughly $100 million per year in productivity gains and increase the pace of, and earnings accretion from, bolt-on acquisitions. Based on successful implementation of these strategies and others, they set an adjusted earnings per share target of $8.00 -- $8.50 per share in 2018, up from $6.02 in 2015 (implied growth of more than 10% per year). Management commented at the Deutsche Bank Global Industrials and Materials Summit on 9 June 2016 about being able to accomplish these goals while maintaining gross leverage at 2.0x. These statements along with the refinancing of the secured debt with unsecured debt indicate a material shift in financial policy that is commensurate with an investment grade rating.

The stable outlook reflects Moody's view over the sustainability of the company growth plan and its ability to maintain financial metrics that are consistent with an investment grade rating over the next two years. While an upgrade to the rating is unlikely over the next 12- 24 months due to the number and limited size of acquisitions that Celanese has undertaken to date, Moody's would consider an upgrade once the company is able to demonstrate consistent growth above GDP with this strategy, while credit metrics strengthen toward 2.5x leverage and RCF/Debt of 25%. Conversely, Moody's would consider downgrading Celanese's rating if the company is unable to sustain leverage of below 3.0x and RCF/Debt of 20%.

Celanese has excellent liquidity with a large cash balance and the expectation that free cash flow will exceed $500 million per year. Celanese also has access to over $500 million under its $1 billion unsecured revolver maturing 2021 and roughly $60 million under its $120 million accounts receivable program maturing 2019 as of the last reporting date March 31, 2016. The facility does not contain a material adverse change clause for subsequent borrowings, which, in Moody's view, improves the quality of the liquidity provided.

The principal methodology used in these ratings was Global Chemical Industry Rating Methodology published in December 2013. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

Celanese Corporation, headquartered in Irving, Texas, is a leading global producer of acetic acid, vinyl acetate monomer, emulsions, acetate tow, engineered thermoplastics and food ingredients. Celanese has net sales of over $5 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

John Rogers
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Brian Oak
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's upgrades Celanese to Baa3
No Related Data.
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