Rating Action: Moody’s assigns Ba2 to INEOS’ senior secured notes and B2 to senior unsecured notes; outlook negative
Global Credit Research – 15 Jan 2021
London, 15 January 2021 — Moody’s Investors Service (“Moody’s”) today assigned a Ba2 rating to the guaranteed senior secured notes due 2026 being issued by INEOS Quattro Finance 2 Plc, a subsidiary of INEOS Quattro Holdings Ltd (INEOS, rated Ba3, Negative). The agency further assigned a B2 rating to the guaranteed senior unsecured notes due 2026 being issued by INEOS Quattro Finance 1 Plc, a subsidiary of INEOS Quattro Holdings Ltd. The rating outlook is negative.
The guaranteed senior secured notes will rank pari-passu with the Ba2 rated guaranteed senior secured term loans due 2026 and 2027 issued by INEOS 226 Limited, INEOS US Petrochem LLC, INEOS Styrolution Group GmbH and Ineos Styrolution US Holding LLC, as well as with the guaranteed senior secured notes due 2027 issued by INEOS Styrolution Group GmbH. The notes’ rating is one notch above the corporate family rating for INEOS due to their ranking priority within the capital structure.
The guaranteed senior unsecured notes will rank behind the guaranteed secured term loans and guaranteed senior secured notes therefore they are rated at B2, two notches below the corporate family rating.
The Ba3 corporate family rating reflects the large size and scope of INEOS Quattro Holdings Ltd with top market positions globally in a variety of chemical products, its diverse product lines and end markets, a track record of successful acquisition integration by the INEOS Group coupled with a history of consistently exceeding initial synergy expectations. The rating further considers the company’s publicly stated financial policy and Moody’s expectations of moderating leverage — particularly if the recent recovery in trading is sustained.
Counterbalancing these strengths, the rating also incorporates significant uncertainty related to the integration of the legacy and acquired businesses that have limited vertical integration, material underperformance in the aromatics business in the wake of coronavirus, expectations of $150 million in synergies (primarily fixed costs) which are yet to be realized, as well as a history of significant risk appetite across the broader INEOS Group and the limited available disclosure regarding the larger INEOS Group outside of the rated entities.
For detailed rating considerations, please refer to the press release dated 11th January 2021.
The negative rating outlook reflects the high leverage for the rating category, the uncertain macroeconomic climate and the execution risk that INEOS Quattro Holdings Ltd will successfully integrate its acquired businesses and achieve or exceed its target synergies while gradually reducing leverage towards its stated financial policy target. The rating could be stabilized if Moody’s-adjusted leverage moves sustainably towards or below 4.5x and the integration of the businesses proceeds as planned.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Whilst unlikely in the near term, positive rating pressure would occur from successful integration of the acquired businesses, achieving synergy targets and reducing leverage to well below 4.0x on a sustained basis while generating positive free cash-flow and maintaining good liquidity at all times.
Conversely, negative rating pressure could occur from failure to integrate the businesses and realized synergies as outlined such that leverage remains above 4.5x on a sustained basis. Any material deterioration in liquidity or dividend payments could also cause negative rating pressure.
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.
INEOS Quattro Holdings Ltd is an indirect wholly-owned subsidiary of INEOS AG formed in January 2021 through a merger of INEOS Styrolution Holdings Limited and INOVYN Limited together with aromatics and acetyls petrochemical assets acquired from BP p.l.c.. INEOS Quattro Holdings Ltd is a globally diversified chemical company with leadership market positions in a wide range of chemicals with broad market applications such as polystyrene, vinyls and caustic soda, paraxylene, PTA, acetic acid and acetate derivatives. On a pro-forma basis, businesses comprising INEOS Quattro Holdings Ltd generated revenues of E15 billion and EBITDA of E1.9 billion in 2019.
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.
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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.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
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 Company press release 14-Jan-2021
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