Moody's Lifts Outlook on Albemarle (ALB) to Positive Amid Chemetall Asset Sale
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Dividend Yield: 1.3%
Revenue Growth %: -50.8%
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Moody's Investors Service affirmed the ratings of Albemarle Corporation (NYSE: ALB) at Baa3, following the announcement that it would sell its Chemetall metal surface treatment business to BASF for $3.2 billion and use a portion of the proceeds for debt reduction. Ratings affirmed include the P-3 Commercial Paper rating and Baa3 Senior Notes and Eurobonds. The transaction is subject to the normal regulatory and board approvals and is expected to close by year end 2016. Moody's changed the outlook to positive from stable.
Affirmations:
..Issuer: Albemarle Corporation
....Senior Unsecured Commercial Paper, Affirmed P-3
....$425 million Senior Unsecured Notes due 2024, Affirmed Baa3
....$250 million Senior Unsecured Notes due 2019, Affirmed Baa3
....$350 million Senior Unsecured Notes due 2044, Affirmed Baa3
....$350 million Senior Unsecured Notes due 2020, Affirmed Baa3
....€700 million Senior Unsecured Notes due 2021, Affirmed Baa3
Outlook Actions:
..Issuer: Albemarle Corporation
....Outlook, Changed To Positive From Stable
RATINGS RATIONALE
Affirmation of the Baa3 ratings reflects the expected use of proceeds to reduce debt and improve leverage to a level more commensurate with an investment grade rating. The positive outlook reflects the strong business positions, margins and outlook of the remaining bromine and lithium-based portfolio, particularly with respect to the unique positioning in lithium resources, market position, product diversity and long term outlook. The ratings and the positive outlook also anticipate that the company will engage in M&A activity that is small to modest in scale, but does not anticipate further transformational acquisitions.
In lithium, Albemarle enjoys leading market shares, strong vertical integration into low cost brine and rock resources, strong and diverse end-market exposure into high-growth markets like energy storage, electronics and electric vehicles, and robust EBITDA margins. The lithium business has one of the more favorable growth outlooks across the chemicals space, Moody's added.
Moody's said it will use the time period while the positive outlook is in place to further assess Albemarle's financial policies, priority use of cash, including any further debt reduction, share buybacks and M&A activity and how these activities might impact financial leverage over time. The positive outlook period will also be used to assess the medium and longer term growth trend line, particularly with respect to the lithium battery business.
Moody's would consider an upgrade if the company maintains or improves its strong margins across its portfolio, improves cash flow-to debt metrics, and the lithium business realizes rates of growth significantly above GDP rates. Consideration for an upgrade would also require the company to adhere to financial policies that support strong investment grade ratings with leverage maintained at or below 2.5x (unadjusted, 3.0x adjusted).
Given the strong positioning in the Baa3 category on a post-divestiture basis, prospects for a downgrade seem remote at this time. However, Moody's would consider a downgrade if Albemarle executes a large acquisition that takes adjusted leverage above 4.0x and if the path to leverage restoration in a reasonable time frame lacks visibility.
Liquidity
Albemarle's liquidity is adequate and consists of $522 million of availability under its $1.0 billion credit facility/CP program, $252 million in balance sheet cash, and positive free cash flow. The credit facility matures in February 2020. At March 31, 2016, CP usage was $478 million; outstandings under the credit facility were zero. The prime-3 (P-3) short term rating on the company's CP program is supported by the committed unused portion of the credit facility.
The credit facility has one financial covenant -- a maximum consolidated leverage covenant of 3.5x. We expect the company to remain in compliance with its covenants through 2016.
The principal methodology used in these ratings was Global Chemical Industry Rating Methodology published in December 2013. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.
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