Increase in Mesh Litigation Reserves is Credit Negative for Endo Int'l (ENDP) - Moody's Oct 1, 2014 05:18PM

Moody's Investors Service commented that the increase in mesh litigation reserves announced by Endo Int'l (NASDAQ: ENDP) is credit negative for the company including the rated issuers Endo Luxembourg Finance I Company S.a.r.l., Endo Finance LLC and Endo Finance Co (collectively "Endo"). Endo's Corporate Family Rating is Ba3 and its ratings are under review for possible downgrade related to the company's recent proposal to acquire Auxilium Pharmaceuticals, Inc. Moody's rating review of Endo will consider the impact of mesh litigation outflows anticipated over the next several years.

U.S. Silica (SLCA) CFR Raised to 'Ba2' by Moody's Oct 1, 2014 12:25PM

Moody's Investors Service upgraded U.S. Silica Company, Inc.'s (NYSE: SLCA)("Silica") Corporate Family Rating to Ba3 from B1, as well as upgraded its senior secured credit facility to Ba3 from B1, and its Probability of Default Rating to B1-PD from B2-PD. The Speculative Grade Liquidity rating was affirmed at SGL-2. The rating outlook is stable.

The following actions were taken:

Corporate Family Rating, upgraded to Ba3 from B1;

$425 million senior secured credit facility, upgraded to Ba3 (LGD-3) from B1 (LGD-3);

Probability of Default Rating, upgraded to B1-PD from B2-PD;

Speculative Grade Liquidity rating, affirmed at SGL-2.

The rating outlook was revised to stable from positive.


The upgrade in U.S. Silica's ratings is based on the company's significantly stronger operating performance, substantial improvements in debt leverage and interest coverage, reduced ownership position of a major shareholder and our expectation that continued stability in the hydraulic fracturing (fracking) industry will continue to support strong operating cash flow generation. U.S. Silica has more than doubled its revenues over the past three years due to rising demand for frac sand along with the pursuit of strategic growth initiatives and acquisitions and has maintained strong EBITDA margins. The company is among the top five suppliers (by nameplate capacity) of frac sand in the United States. Strong operating performance has enabled the company to generate enough cash to pursue strategic growth initiatives, pay shareholder dividends and still reduce its leverage ratios while raising its interest coverage ratio. Silica's debt-to-book capitalization declined to 54% for the twelve months ending June 30, 2014 from 57% at year-end 2013 while adjusted debt-to-EBITDA declined to 2.7x from 3.0x and its adjusted EBIT interest coverage ratio rose to 5.9x from 5.3x over the same time periods. In addition, the company's private equity ownership by Golden Gate Capital was eliminated in December 2013 when Golden Gate sold its remaining shares. We view this as a credit positive since it is likely to reduce the incentive to pursue shareholder friendly actions.

U.S. Silica's Ba3 Corporate Family Rating reflects the company's operating results, modest debt leverage, strong interest coverage, high profit margins and solid market position in the growing frac-sand industry. The company's credit profile also benefits from its position as one of the largest producers of industrial silica in the United States, its extensive proven and probable reserves, strategically located quarries and production facilities, developed logistical network and long-standing customer relationships. At the same time, the company's rating is constrained by its limited size, reliance on a single commodity product, exposure to cyclical end markets and reliance on the hydraulic fracturing industry for the majority of its revenue and operating income. The B1-PD probability of default rating is one notch lower than the Corporate Family Rating to reflect the higher (65%) recovery rate utilized in Moody's loss-given-default methodology for companies that rely primarily on first-lien bank loans. Historical recovery studies indicate that corporate capital structures comprised solely of bank debt have higher recovery values than those that utilize a combination of bank debt and other debt instruments.

U.S. Silica's SGL-2 reflects the company's good liquidity position over the next 12 to 18 months. At June 30, 2014, the company's liquidity was supported by $106 million of cash and availability of approximately $47 million under its senior secured revolving credit facility. The company has generated negative free cash flow over the past several years due to shareholder dividends and capital investments in raw sand plants, resin coated product facilities and transloading terminals. We expect Silica to continue to pursue growth initiatives and to pay a quarterly dividend. In order to meet increasing demand, the company is investing in expanding capacity at its Pacific, Missouri plant as well as investing in a new greenfield facility.

The stable outlook reflects US Silica's operating performance and that the positive fundamentals in the hydraulic fracturing (fracking) industry will support strong operating cash flow generation. The stable outlook also assumes US Silica will operate with stable capital structure and credit metrics even as it pursues its growth strategies.

Moody's notes that stronger liquidity would be a prerequisite for an upgrade, with substantially stronger internal cash cusion and external long-term, committed and unconditional credit availability. The ratings could experience upward momentum if the company continues to build greater scale and diversity and consistently generates positive free cash flow, while reducing and maintaining its adjusted debt-to-book capitalization below 50% and adjusted debt-to-EBITDA closer to 2.0x.

The ratings would be considered for a downgrade should end markets subtantially deteriorate, specifically the oil and gas end market. A downgrade could also occur should operating results deteriorate such that adjusted debt-to-EBITDA rises above 3.5x; the company more aggressively pursues growth or shareholder friendly initiatives, or liquidity is significantly reduced.

Enterprise Products Partners (EPD) Ratings Affirmed by S&P Oct 1, 2014 11:37AM

Standard & Poor's Ratings Services said it affirmed its 'BBB+' corporate credit and senior unsecured ratings and 'A-2' short-term rating on Enterprise Products Partners (NYSE: EPD) following its announcement that it has acquired crude oil and refined products logistics partnership Oiltanking Partners L.P. for $4.4 billion. The outlook is stable.

"The rating action reflects our view that the transaction offers meaningful strategic benefits to EPD's future growth plans and that the partnership's credit measures will largely remain unchanged pro forma for the transaction," said Standard & Poor's credit analyst Aneesh Prabhu.

We believe Oiltanking's marine terminal assets hold a unique and coveted position on the Houston Ship Channel, enhance the partnership's access to waterborne markets, and are important to the partnership's plans to grow liquefied petroleum gas exports and its refined products and petrochemicals businesses.

Furthermore, we view integration risk to be minimal because EPD's Mont Belvieu and ECHO crude oil facilities are connected with these assets and EPD currently accounts for about 30% of Oiltanking's revenue and 40% of its EBITDA. Oiltanking has about 24 million barrels of crude oil and refined product storage and 12 ship and barge docks on the Houston Ship Channel and at the Port of Beaumont. Also, the company's contract structure is 100% fee-based with an average tenor of more than three years, which supports credit. Pro forma for the transaction, we expect credit measures to remain strong, with total debt to EBITDA of 3.9x, EBITDA to interest of 4.7x, and distribution coverage of 1.3x at year-end 2014.

The stable outlook reflects our expectation that EPD will maintain a solid competitive position with minimal commodity risk and strong credit measures, and keep financial leverage below 4x.

We could revise the outlook to negative if debt to EBITDA increased to about 4.5x on a sustained basis, which could occur if the partnership funds its growth projects and acquisitions with more debt.

We do not foresee higher ratings unless there is a notable and sustained reduction in EPD's financial risk profile (specifically, debt to EBITDA sustained at about 3x to 3.5x), an increase in fee-based cash flows to more than 90% of EBITDA, and changes in its financial policy to promote the retention of more cash flow and distribution coverage at least 1.5x.

Moody's Affirms Unsecured Ratings of Energizer Holdings (ENR) Following Review for Downgrade Sep 30, 2014 03:16PM

Moody's Investors Service confirmed Energizer Holdings' (NYSE: ENR) Baa3 senior unsecured note ratings, concluding the review for downgrade initiated on April 30, 2014 following Energizer's announced plan to split-up its household products and personal care businesses. The confirmation reflects Moody's expectation that Energizer will reduce debt-to-EBITDA to the 3x range within 12-18 months following the spin-off, and that the company's remaining personal care businesses will generate stable revenue and meaningfully positive free cash flow. The negative rating outlook reflects that because Energizer has not finalized certain aspects of the spin-off -- including the stand-alone cost structures, distribution arrangements, and capital structures -- there is uncertainty regarding the company's ability to reduce and sustain debt-to-EBITDA leverage in a 3x range.

Moody's took the following rating actions on Energizer Holdings, Inc.:


Senior Unsecured Regular Bond/Debentures, at Baa3

Senior Unsecured Shelf, at (P)Baa3

Outlook is Negative


Energizer has good market positions in its personal care businesses, and Moody's believes that stable category demand and the company's growth and cost reduction initiatives will continue to drive strong free cash flow following the spin-off. Moody's anticipates that Energizer will retain all of its existing debt following the spin-off and utilize a combination of existing cash, projected free cash flow and cash distributions from the spun-off entity to fund a partial debt pay down. Moody's expects that the resulting modest leverage position, in combination with the mix of stable personal care businesses, can sustain an investment-grade rating notwithstanding the diminished scale, business diversity and cash flow resulting from the credit negative spin-off of the household products business.

Energizer's Baa3 senior unsecured rating reflects that following the spin-off the company will continue to maintain a good market position in a portfolio of relatively stable consumer products, strong free cash flow, and product and geographic diversification. Revenue pressure exists from competition with more diversified and better capitalized multi-national companies, and the ongoing need for promotions to hold share, but category demand remains consistent through economic cycles. Debt-to-EBITDA leverage (3.7x LTM 6/30/14 incorporating Moody's standard adjustment and cash related restructuring costs as a reduction to EBITDA) is high for the rating. The willingness to pursue shareholder-oriented moves such as the spin-off also creates event risk. However, Moody's expects that Energizer will continue to pursue a balanced financial strategy with debt reduction following the spin-off, leading to a moderate leverage profile. Energizer is targeting a July 1, 2015 separation date and Moody's believes there is a very high likelihood of transaction completion.

Energizer has a strong liquidity position with $1.1 billion of existing cash and projected free cash flow of $300 million or more over the next 12 months providing strong coverage of its minimal debt maturities. Unused capacity on Energizer's $450 million revolver ($175 million drawn as of 6/30/14) that expires in May 2016 provides additional liquidity support. Moody's expects that Energizer will maintain a comfortable cushion within the revolver's financial maintenance covenants. The liquidity assessment is based on Moody's projections for Energizer's combined personal care and household products businesses. Moody's expects Energizer to maintain a good liquidity position following the spin-off, although the company has not finalized the post-split debt structure.

An upgrade is unlikely given modest scale following the spin-off and event risks. Energizer's ratings could nevertheless be upgraded if the company improves its scale and diversification, demonstrates consistently positive organic revenue and earnings growth, sustains debt-to-EBITDA in a low 2x range, and maintains a strong liquidity position.

Energizer's ratings could be downgraded if Moody's does not expect the company will reduce and sustain debt-to-EBITDA leverage in a 3x range following the spin-off, or if the company does not maintain conservative financial policies. A downgrade could result from a deterioration in operating performance or other actions that increase leverage such as acquisitions and shareholder distributions. A deterioration of liquidity could also create downward rating pressure.

Please see the credit opinion at for additional information on Energizer's credit ratings.

The principal methodology used in this rating was Global Packaged Goods published in June 2013. Please see the Credit Policy page on for a copy of this methodology.

Freeport-McMoran (FCX) Outlook Raised to Stable by S&P; Sees Steady Operating Performance Over Next 24 Months Sep 30, 2014 03:10PM

Standard & Poor's Ratings Services said today it affirmed its 'BBB' corporate credit rating on Phoenix-based Freeport-McMoRan Inc. (NYSE: FCX). At the same time, we revised the rating outlook to stable from negative.

The ratings affirmation reflects Freeport's unchanged "satisfactory" business risk and "intermediate" financial risk profiles.

"The stable outlook reflects our view that Freeport-McMoRan Inc.'s operating performance will remain steady over the next 24 months, given our view that copper and oil and gas prices will be relatively stable," said Standard & Poor's credit analyst William Ferara.

We expect Freeport will produce debt to EBITDA of about 2x in 2014, with debt leverage roughly in this area irrespective of most reasonable commodity price and volume conditions.

We could lower the ratings if commodity prices dropped significantly and remained depressed, causing the company's financial ratios to deteriorate. Specifically, we could lower the ratings if debt to EBITDA rose and stayed above 3.5x and FFO to total debt remained less than 30% without any clear prospects for improvement. Higher-risk investments in the oil and gas business could also lead to a downgrade.

We could revise the outlook to positive if the company sustained debt leverage notably below 1.5x under most reasonable commodity price and volume conditions, maintained a less aggressive capital spending program, and had a lower proportion of cash flows from the oil and gas business.

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