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Rating Action:

Moody's upgrades Platform's CFR to Ba3, concludes review

02 Feb 2019

New York, February 02, 2019 -- Moody's Investors Service ("Moody's") upgraded the corporate family rating of Platform Specialty Products Corporation, which is being renamed Element Solutions Inc., to Ba3 from B2, concluding the review initiated on July 24, 2018 when the company announced the planned sale of its Arysta LifeScience Ltd. ("Arysta") agricultural chemicals business to UPL Corporation Limited (Baa3 positive) for $4.2 billion in cash, subject to certain adjustments. The company has obtained all regulatory approvals necessary to complete the sale of Arysta to UPL and the transaction closed on January 31, 2019. The ratings outlook is stable. Moody's also affirmed the SGL-2 speculative grade liquidity rating.

Other rating actions are described below

Upgrades:

..Issuer: Platform Specialty Products Corporation

.... Probability of Default Rating, Upgraded to Ba3-PD from B2-PD

.... Corporate Family Rating, Upgraded to Ba3 from B2

....Senior Unsecured Notes, Upgraded to B2 (LGD5) from Caa1 (LGD5)

Outlook Actions:

..Issuer: Platform Specialty Products Corporation

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

Affirmations:

..Issuer: Platform Specialty Products Corporation

.... Speculative Grade Liquidity Rating, Affirmed SGL-2

....Senior Secured Term Loan, Affirmed Ba2 (LGD2)

....Senior Secured Revolving Credit Facility, Affirmed Ba2 (LGD2)

RATINGS RATIONALE

The upgrade of the corporate family rating to Ba3 reflects expected moderate leverage following the sale of the company's agricultural chemicals business, strong margins supported by the asset-light business model and solid globally diversified business with leading positions in niche segments. Pro forma for the sale of Arysta and the new capital structure, the company had debt/EBITDA of 3.9 times for the twelve months ended December 31, 2018 and interest coverage of 5.6 times, including Moody's standard adjustments. The company's new management reiterated publicly that it intends to keep unadjusted net leverage below 3.5 times, which represents a marked shift to a more conservative financial policy. The rating is constrained by the lack of operating history under the new financial policy and under the new management and expectations that projected free cash flow will be used for share repurchases and M&A, rather than further debt reduction. The company has a $750 million share buy-back authorization and had roughly $550 million of cash on hand as of the end of December 2018, pro forma for the sale of Arysta. Given the company's strong margins, low capital expenditure requirements and a significant reduction in interest expense under the new capital structure, the company should generate at least $200 million of free cash flow a year. The company could undertake roughly $550 million in share buy-backs from cash and free cash flow without increasing debt, but would deplete its cash on hand.The rating assumes no debt-funded share repurchases that would increase leverage. For example, assuming modest EBITDA growth and roughly $200 million in additional borrowing, Moody's adjusted leverage would increase to 4.2 times if the company completes all of its $750 million share repurchase program in 2019. The company is facing headwinds in some of its end-markets, such as high-end mobile phones and automotive sector in China. The rating reflects expectations that the company would manage its share repurchases and acquisitions within its stated leverage target, while maintaining modest organic growth, strong margins and good liquidity.

Platform's ratings reflect its leading positions in electronics and industrial and specialty chemicals with diverse operations and a global customer base, but also significant exposure to cyclical end markets such as automotive, high-end electronics, construction and oil & gas production as well as exposure to foreign currencies and commodity metal prices. Most of the products Platform sells are consumable and are not tied to new capital investments which should provide greater revenue stability. Platform's higher-margin electronics business (63% of sales) is focused on assembly solutions (50% of the segment, 32% of overall sales) and circuit board technology (35% of segment and 22% of sales) for consumer electronics, such as cell phones and TVs, telecom infrastructure, auto electronics, servers and data storage and medical and aerospace. Declining demand for high end cell phones has negatively impacted the circuit board business in the last two quarters of 2018 and the company expects this trend to continue in 2019. The company's exposure to the cyclical semiconductor industry is only 9% of sales and Platform's products for this end market are also consumable and do not depend on project-based capex. The company has been growing the semiconductor segment due to customer wins and also benefited from increased electronic content in automobiles. The company's industrial and specialty segment (37% of sales) is exposed to some cyclical markets such as automotive, construction, oil and gas production and consumer packaged goods. Platform's automotive segment growth depends not only on automotive sale trends but on the increase of its products usage in vehicles due to ongoing trend for lightweighting and fuel efficiency as well as increasing usage of electronics. The company has been negatively impacted by a slowdown in automotive in China given its high exposure to China and China-dependent Asia. Moody's believes that the company has a portfolio of high margin specialty chemicals and materials that should generate organic growth at or above GDP, however we also expect the company to pursue targeted M&A to supplement its organic growth in areas where it does not have sufficient scale or leadership positions.

We expect the company to maintain good liquidity supported by cash balances, free cash flow generation and availability under its revolving facility. Platform had approximately $550 million of cash on the balance sheet as of December 31, 2018, pro forma for the sale of Arysta. The company also had full availability under the new $330 million five-year revolving facility. The revolver will have a springing first lien net leverage ratio covenant of 5 times if it is more than 30% drawn. There is significant headroom under the covenant and we do not anticipate the covenant to be triggered. The company is expected to generate at least $200 million of free cash flow (excluding costs related to the transaction). The term loan allows for issuance of incremental debt not to exceed the greater of $460 million or 1 time consolidated EBITDA plus an unlimited amount up to 3.5 times first lien net leverage or 5 times senior secured net leverage or 2 times fixed charge coverage ratio for the unsecured debt.

The Ba2 rating on the secured credit facilities reflects their senior position in the new capital structure. The credit facilities are secured by first lien on the assets of the borrower and guarantors, which include domestic subsidiaries. The borrower and guarantors generate roughly 20% of EBITDA and roughly 30% of assets. Although there is less secured debt in the new capital structure and some foreign assets are unencumbered, the senior unsecured notes are rated B2 reflecting their effective subordination to the still sizable secured debt. The rating on the senior unsecured notes also reflects expectations that the amount of secured debt could increase from the current level in the future to fund either acquisitions or share repurchases.

The stable outlook reflects our expectations of modest organic growth and projected EBITDA improvement from realization of cost synergies due to the elimination of the holding company costs following the sale of Arysta. The stable outlook also reflects our expectations that the company will keep its net leverage within its stated public target as it undertakes its share repurchases and manages through a weakening macroeconomic environment.

We could upgrade the rating if the company reduces leverage below 3.5 times on a sustained basis, maintains retained cash flow to debt above 17% and consistently generates positive free cash flow.

We could downgrade the rating if the there is significant deterioration in the company's end markets, if the company increases its leverage above 4 times on a sustained basis, retained cash flow to debt declines to 10% and EBITDA margin consistently declines.

Headquartered in West Palm Beach, Florida, Platform Specialty Products Corporation (Platform) is a public company that produces a wide array of specialty chemicals and materials primarily sold into the industrial markets. Pro forma for the sale of the agricultural chemicals business, the company had sales of $1.96 billion in the twelve months ended December 2018 and Moody's adjusted EBITDA of approximately $441 million. Platform was founded by investors Martin Franklin and Nicolas Berggruen in 2013 as an acquisition vehicle focused on the specialty chemical industry.

The principal methodology used in these ratings was Chemical Industry published in January 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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.

Anastasija Johnson
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Brian Oak
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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