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Rating Action:

Moody's upgrades Ineos Group Holdings to Ba2, stable outlook

19 Oct 2017

London, 19 October 2017 -- Moody's Investors Service, ("Moody's") has today upgraded Ineos Group Holdings S.A.'s (Ineos) Corporate Family Rating (CFR) to Ba2 from Ba3 and Probability of Default Rating (PDR) to Ba2-PD from Ba3-PD. Concurrently, Moody's has upgraded the ratings of the senior secured tem loan facilities due March 2022 and March 2024 borrowed by INEOS US Finance LLC and INEOS Finance Plc; upgraded the rating of the senior secured notes due May 2023 issued by INEOS Finance Plc to Ba1 from Ba2; and upgraded the ratings of the senior unsecured notes due August 2024 issued by INEOS Group Holding SA to B1 from B2. The outlook on all ratings is stable.

A full list of affected ratings is provided towards the end of this press release.

"The upgrade reflects Ineos' strong operating performance since 2015 and Moody's expectation of robust performance in the next 12 months, resulting in solid credit protection metrics supporting the higher rating," says Hubert Allemani, Moody's Vice President -- Senior Analyst and lead analyst for Ineos. "The upgrade also reflects Ineos' strong free cash flow generation, low leverage and financial policy commitment to maintain a net leverage of under 3x through the cycle, which should provide the company with a stronger ability to manage a downcycle."

RATINGS RATIONALE

While the company's revenues have been declining to €12.6 billion in 2016 from €18.2 billion in 2012, Ineos profitability has substantially increased with EBITDA on a Moody's adjusted basis increasing to €2.6 billion at the end of 2016 from €1.6 billion in 2012. Benefitting from a mix of divestment of low margin assets and top of cycle like market conditions, Ineos' Moody's adjusted EBITDA margin increased to a high of 20.5% at the end of 2016 from 8.7% in 2012. Moody's expects that the company will be able to maintain such margin to the end of 2017, as evidenced by current trading. However, Moody's expects Ineos' adjusted EBITDA to decline to approximately €2 billion in 2018. Moody's believes that market conditions will soften with added competition from additional ethylene capacity from the US and the Middle East, on average cheaper than European produced ethylene.

The rating agency expects the top of the cycle conditions in olefin and polymers in the US and Europe to normalise next year. Competitors' investments in new ethylene and polyethylene capacities should create an oversupplied market and margin reductions. However, the decline in market conditions should not be as substantial as previously expected by Moody's because several new US ethylene capacity additions have been delayed and are not expected to become fully operational before 2019. The performance of the Chemical Intermediates division is expected to improve from the bottom of the cycle conditions they have been in for some time. Moody's also believes that the low cost base of Ineos will continue to support the profitability despite the expected softening of the olefin and polymers market next year.

Moody's still expects Ineos to generate significant positive free-cash flow (FCF) in the next 12 months, despite the rating agency expectations of a decrease in the Moody's adjusted EBITDA. Ineos cash generation should remain strong and Moody's expects the company to continue to build up cash that could be used to either repay debt to further reduce leverage or be kept on the balance sheet to enhance the liquidity position. Ineos' FCF has been high at approximately €1 billion since 2015. Moody's expects the company to report similar cash generation this year before a decline to levels ranging between €500 million and €600 million over the next two years.

Ineos' Moody's adjusted leverage at the end of June 2017 was low at 2.9x, down from 4x at the end of 2016. Ineos' gross debt to EBITDA reduced because of both stronger EBITDA and debt repayment of approximately €1.2 billion made during the first quarter of 2017. In line with Moody's expectations of lower EBITDA in 2018, Moody's adjusted leverage should increase to around 3.5x. Moody's believes that both Ineos' current and expected credit metrics for 2018 are commensurate with a Ba2 rating category, which adequately positioned the company through the cycle.

Ineos' Ba2 CFR primarily reflects the group's: (1) strong market position as one of the world's largest chemical groups, enjoying leading market positions across a number of key commodity chemicals, mainly olefins; (2) vertically integrated business model, which ensures Ineos can capture margins across the value chain, whilst benefitting from certainty of supply and economies of scale; (3) well-invested production facilities, with Moody's estimation that the majority rank in the first or second quartiles on the regional industry cost curve; (4) track record of generating positive cash flows in most of the last five years, including ca €1 billion of free cash flow in both 2015 and 2016; and (5) focus on reducing leverage as demonstrated by the €1.2 billion debt payment made during Q2 2017. This further supported by the announced financial policy to maintain net leverage of under 3x through the cycle.

However, the rating also reflects the group's (1) exposure to weakening US margins in the next two or three years mostly due to expected new US capacity gradually coming online from 2018 onward; (2) inherent cyclicality and exposure to volatile raw material prices; (3) current high middle to top of cycle like market environment and (4) risk of mergers and acquisitions as well as related party loans or transactions that would use cash that otherwise could repay debt or support the liquidity.

LIQUIDITY

Moody's views Ineos current liquidity as strong underpinned by positive cash generation and €1.3 billion of cash on the balance sheet at end of June 2017. Ineos cash generation should also benefit from the lower cash interest with savings estimated at around €100 million on an annualised basis from the re-pricing exercises conducted by the company over the last twelve months.

In addition to the positive FCF, which Moody's expects at approximately €1 billion this year, the company can access a €800 million securitization program to support its working capital swings. The availability under this facility was of €385 million at the end June 2017. However the company does not have any committed revolving facilities, which is seen as a negative in our liquidity assessment.

The company's maturity profile is long and apart from the securitization program due in December 2018, the first maturity is the €3.1 billion senior secured term loan B facilities which are due in March 2022. The remaining instruments maturities are in 2023 and 2024.

RATING OUTLOOK

The stable outlook incorporates Moody's expectations that current top of the cycle conditions for much of Ineos' businesses will turn down but that the company's credit metrics including leverage and free cash flow will not worsen substantially, and that its underlying chemical markets do not significantly deteriorate.

WHAT COULD CHANGE THE RATING UP/DOWN

The rating could be upgraded if (1) retained cash flow to debt is consistently above 25%; (2) Moody's adjusted gross debt to EBITDA is sustained below 2.5x; (3) Ineos maintains good liquidity and (4) the company develops a track record of a conservative financial policy.

Conversely, the ratings could be downgraded if (1) Moody's adjusted gross debt to EBITDA rises sustainably over 4x; (2) retained cash flow to debt is consistently less than 15%; (3) liquidity profile deteriorates and (4) the company's financial policy deteriorates notably with increased dividends or a material change in the company's relationship with the wider INEOS Limited group of companies.

Incorporated in Luxembourg, Ineos Group Holdings S.A. (IGH) is one of the world's largest chemical companies as measured by revenue, and a large global manufacturer of petrochemical products, mainly olefins and polyolefins. The key olefins manufactured by the petrochemical industry are ethylene and propylene and these olefins are in turn used to produce polyolefins and other olefin derivatives.

IGH operates 31 manufacturing sites in six countries. As of December 31, 2016 total chemical production capacity was approximately 21,400 kta, of which 59% was in Europe and 41% was in North America. IGH also operates in APAC.

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

Upgrades:

..Issuer: Ineos Group Holdings S.A.

.... Corporate Family Rating, Upgraded to Ba2 from Ba3

.... Probability of Default Rating, Upgraded to Ba2-PD from Ba3-PD

....Backed Senior Unsecured Regular Bond/Debenture, Upgraded to B1 from B2

..Issuer: Ineos Finance plc

....Backed Senior Secured Bank Credit Facility, Upgraded to Ba1 from Ba2

....Backed Senior Secured Regular Bond/Debenture , Upgraded to Ba1 from Ba2

..Issuer: Ineos US Finance LLC

....Backed Senior Secured Bank Credit Facility, Upgraded to Ba1 from Ba2

Outlook Actions:

..Issuer: Ineos Finance plc

....Outlook, Remains Stable

..Issuer: Ineos Group Holdings S.A.

....Outlook, Remains Stable

..Issuer: Ineos US Finance LLC

....Outlook, Remains Stable

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.

Hubert Allemani
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

Anke N Richter, CFA
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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