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Rating Action:

Moody's upgrades The LYCRA Company to Caa1; outlook stable

23 Apr 2021

New York, April 23, 2021 -- Moody's Investors Service ("Moody's") has upgraded Eagle Intermediate Global Holding B.V.'s (d/b/a The LYCRA Company) Corporate Family Rating (CFR) to Caa1 from Caa2. At the same time, Moody's has upgraded The LYCRA Company's senior secured notes to Caa1 from Caa2, Probability of Default rating to Caa1-PD from Caa2-PD, and Speculative Grade Liquidity Rating to SGL-3 from SGL-4. The rating outlook remains stable.

"The rating upgrade reflects an improvement in The Lycra Company's earnings and liquidity profile, as well as a more supportive operating environment thanks to the improving demand from the textile industry. However, its credit rating remains constrained by its high debt leverage and weaker credit quality of its majority owner," said Jiming Zou, a Moody's Vice President and Lead Analyst for The Lycra Company.

Ratings actions:

Upgrades:

..Issuer: Eagle Intermediate Global Holding B.V.

.... Corporate Family Rating, Upgraded to Caa1 from Caa2

.... Probability of Default Rating, Upgraded to Caa1-PD from Caa2-PD

.... Speculative Grade Liquidity Rating, Upgraded to SGL-3 from SGL-4

....Gtd Senior Secured 1st Lien USD Regular Bond/Debenture due 2025, Upgraded to Caa1 (LGD4) from Caa2 (LGD4) (Co-issuer: Ruyi US Finance LLC)

....Gtd Senior Secured 1st Lien EUR Regular Bond/Debenture due 2023, Upgraded to Caa1 (LGD4) from Caa2 (LGD4) (Co-issuer: Ruyi US Finance LLC)

Outlook Actions:

..Issuer: Eagle Intermediate Global Holding B.V.

....Outlook, Remains Stable

RATINGS RATIONALE

The improving textile demand, a strong rebound in generic spandex prices, a more favorable mix towards Lycra branded spandex and lower firxed cost base after business restructuring will support its 2021 earnings and cash flows, alleviating the concern over its financial flexibility and its access to the revolving credit facility. While the positive demand trend will continue with the vaccination rollout and broader economic reopening in 2021, incremental earnings growth will moderate in 2021 due to the substantially higher costs of raw materials such as PTMEG and MDI. We expect the company's adjusted gross leverage to improve to low to mid-7x and interest coverage to approach 2.0x during the course of 2021. Any additional improvement will require incremental sales growth, which looks challenging because the company is currently operating near full capacity and its commercial strategy is to keep a relatively stable price for its Lycra branded spandex over time.

The Lycra Company reported a substantial increase in its earnings for the second half of 2020 thanks to inventory replenishment by textile customers, low raw material costs and reduced cost base. Reported EBITDA rose to $147.5 million in 2020, versus $122.7 million in 2019. Adjusted debt leverage fell to 7.6x at the end of 2020, from 9.6x at the end of 2019.

The company's adequate liquidity profile (SGL-3) is supported by its large cash balance, no near term maturity and improved cash flow generation in the next 12 months. Cash balance was $117 million, including $20 million outstanding revolver, at the end of 2020. The company fully repaid its promissory notes in early 2021. Management focus on cash conversion and lean inventory level will keep additional working capital consumption at an adequate level in 2021. The springing financial covenant—consolidated net leverage not exceeding 5.75x, if more than 25% of its $100 million revolver is drawn—continues to constrain its financial flexibility in case of a business downturn.

The rating continues to factor in the weak credit quality of its parent company -- Shandong Ruyi Technology Group Co., Ltd. (Caa3 negative), which owns 53.4% of The LYCRA company. Ruyi's lingering refinancing risk has a negative impact on The LYCRA Company's execution of its business plan and results in an uncertainty with regard to The LYCRA Company's ownership, which we regard as a governance risk under our ESG framework.

The LYCRA Company's credit profile is supported by its leading market position in the spandex industry with well-known brands and its long-term relations with textile mills and garment manufacturers. Its premium LYCRA® fiber brand spandex, including LYCRA HyFit® fiber for diapers, account for about three quarters of total sales. The company's continuous R&D efforts, ability to launch new products and strategic plan to shift product mix to higher-margin spandex will support its margins against generic competition and cost inflations.

The stable outlook reflects the recovery in spandex demand and price, the company's effort to improve earnings and maintain adequate liquidity.

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

The rating could be downgraded, if the company's earnings deteriorate and adjusted debt leverage rises above 8.0x or liquidity profile weakens. In addition, a further deterioration in Shandong Ruyi's credit quality could negatively impact The LYCRA Company's rating.

A rating upgrade would require earnings recovery, free cash flow generation and debt/EBITDA below 7.0x on a sustained basis. An upgrade would also depend on a track record of prudent financial policy, as well as an improvement in the credit rating of its parent.

Eagle Intermediate Global Holding B.V. (The LYCRA Company) is a leading producer of man-made fibers, including spandex, polyester and nylon, which are used by many apparel brands. Its owns well-known brands such as LYCRA® fiber, ELASPAN® fiber, COOLMAX® and THERMOLITE®, each of which provides garments with desired functional performance. The company operates eight wholly owned manufacturing and processing facilities in North America, Europe, Asia and South America. In 2020, it generated about $885 million in revenues. Shandong Ruyi together with other investors completed the acquisition the LYCRA Company from INVISTA Equities, LLC. (Baa2 stable) in January 2019.

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.

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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

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.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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.

Jiming Zou, CFA
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

Glenn B. Eckert
Associate Managing Director
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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