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Global Credit Research - 15 Oct 2010
Approximately USD4.6 billion of rated debt affected
London, 15 October 2010 -- Moody's Investors Service has today upgraded the Corporate Family Rating
of SABIC Innovative Plastics Holding B.V. ("SIP")
to Ba1 from Ba2. The ratings of the senior secured term loans of
SIP and its subsidiaries were upgraded to Baa3/LGD 2 (26%) from
Ba2/LGD3 (40%) and the rating of SIP's senior unsecured notes
were upgraded to Ba2/LGD 5 (72%) from B1/LGD 6 (91%).
The outlook for all ratings is stable.
Moody's also withdrew the Ba2/LGD 3 (40%) rating assigned
to SIP's senior secured ABL revolving facility following the termination
and cancellation of the facility effective 5 October 2010.
Moody's said that the upgrade of SIP's ratings reflects the recent
improvement in financial profile reported by the company thanks to the
substantial and constant financial support provided by its parent Saudi
Basic Industries Corporation (SABIC: A1, stable) in parallel
with a sustained recovery in its operating performance driven by more
benign trading conditions and benefits accruing from self-help
In the past two and a half years, SABIC has explicitly demonstrated
its unwavering commitment to its 100%-owned subsidiary by
providing significant financial support to SIP in the face of the challenging
operating environment that has affected the polycarbonate sector as a
result of heightened input cost inflation and subsequently very depressed
demand conditions resulting from the global economic downturn.
During the period, SABIC has made significant capital contributions
to SIP including a mix of equity, subordinated PIK notes and more
recently subordinated floating rate notes. This intercompany funding
has ensured that SIP timely met all its financial obligations, including
the financial covenants set out in its bank credit facilities, at
all times. This has also allowed the partial prepayment of the
secured term loans and unsecured bond raised by SIP to finance the acquisition
from General Electric in 2007, which has led to a 45% cut
in external borrowings from an initial level of USD8.1 billion.
Recently, SIP has also used funds advanced by its parent to repay
in full outstandings under its USD1.0 billion senior secured ABL
revolving facility. This facility has now been terminated and replaced
by a 3-year senior unsecured committed facility of the same amount
provided by SABIC Capital I B.V., which is in line
with SABIC's policy of centralising its international liquidity funding
through this entity.
The ongoing refinancing of SIP's debt and recalibration of its capital
structure has allowed SIP to bring leverage back to a more manageable
level relative to expected future operating profitability and cash flow
generation. Looking ahead, Moody's believes that SABIC
will continue to demonstrate its full commitment to SIP and take further
initiatives to enhance the financial flexibility of its subsidiary.
In this context, it is expected that further refinancing of SIP's
external debt with intercompany funding will take place over time.
At the same time, Moody's notes that the operating performance
of SIP and its financial results have shown some significant improvement
over the past twelve months following the severe downturn experienced
by the group in its main end-user markets such as housing,
construction, automotive and consumer electronics in 2008/ early
2009. Notably, the recovery in demand that commenced in H2
2009, gathered significant momentum in H1 2010 reflected in a strong
rebound in capacity utilization and sales volumes, particularly
in the US market, and a marked pick-up in core product sales
prices. This has led to continuing improvement in operating profitability
with EBITDA margins lifted to the mid to high teens.
Looking ahead, the benign trading conditions that have prevailed
within the polycarbonate sector in the first half of 2010 may not prove
sustainable as raw material cost pressures resurface fuelled by stronger
oil prices. However, SIP's underlying operating profitability
should be underpinned by the savings achieved through the restructuring
action implemented in the past two years, which has helped trim
the company's fixed cost base and resulted in a headcount reduction
in excess of 1,000 employees.
The outlook is stable reflecting Moody's expectation that further
refinancing of SIP's external debt in parallel with a sustained
recovery in the company's underlying operating performance and financial
results, will support the recent improvement in SIP's stand-alone
Upward pressure on the Ba1 CFR may arise should the stand-alone
financial profile of SIP further strengthen underpinned by a sustained
improvement in operating results in parallel with further deleveraging
in the context of the ongoing refinancing of the company's external
debt, which would help position net debt (excluding subordinated
PIK parent notes) to EBITDA below 4.5 times on average throughout
Conversely, SIP's CFR could be downgraded should renewed weakness
in internal cash flow generation in the absence of further deleveraging
of the company's capital structure lead net debt (excluding subordinated
PIK parent notes) to EBITDA to rise above 6.0 times on average
throughout the cycle.
The Baa3 and LGD assessment of LGD 2 (26%) assigned to the senior
secured term loan facility reflects the significant protection afforded
by a comprehensive collateral package supporting this facility as well
as the sizeable layer of subordinated intercompany debt recently injected
in SIP's capital structure. The Ba2 and LGD assessment of
LGD 5 (72%) assigned to the senior unsecured notes reflects the
existence of substantial senior secured bank facilities ranking ahead
of the notes, which however rank ahead of the various subordinated
Moody's last rating action on SIP was the confirmation of its ratings
on 27 March 2008.
The principal methodology used in rating SIP was the Global Chemical Industry
published in December 2009. Other methodologies and factors that
may have been considered in the process of rating this issuer can also
be found on Moody's website.
Incorporated in The Netherlands, SABIC Innovative Plastics Holding
B.V. is a global leading manufacturer of engineering thermoplastics.
The group had total revenues of USD5.4 billion in the fiscal year
ended 31 December 2009.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service's information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
The rating has been disclosed to the rated entity or its designated agents
and issued with no amendment resulting from that disclosure.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
three years preceding the Credit Rating Action. Please see the
ratings disclosure page www.moodys.com/disclosures on our
website for further information.
MOODY'S adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
MOODY'S considers to be reliable including, when appropriate,
independent third-party sources. However, MOODY'S
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
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Please see the ratings disclosure page on our website www.moodys.com
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used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
David G. Staples
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
Moody's upgrades SABIC Innovative Plastics ratings; Outlook stable.
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