New York, October 23, 2012 -- Moody's Investors Service assigned a Ba3 rating to Indigold Carbon (Netherlands) BV's (Indigold Carbon) proposed $350 million incremental five year term loan and affirmed its Ba3 Corporate Family Rating (CFR) and other debt ratings. Proceeds from the financing, along with approximately $75 million of existing balance sheet cash, will be used to fund an intercompany loan to a newly formed, wholly-owned subsidiary of SKI Investments Pte. Ltd. (Singapore), which will fund the consolidation of the Aditya Birla Group's carbon black businesses. The outlook is stable.
Indigold Carbon (Netherlands) BV
$350 million incremental term loan -- Ba3 (LGD3, 43%)
Indigold Carbon (Netherlands) BV
Corporate Family Rating -- Ba3
Probability of Default Rating -- Ba3
Outlook -- Stable
Indigold Carbon (Netherlands) BV, Indigold Carbon USA, Inc. & other borrowers
$75mm sr sec revolving credit facilities due 2016 -- Ba3 (LGD3, 43%) from Ba3 (LGD3, 42%)
$500mm sr sec term loan A due 2016 -- Ba3 (LGD3, 43%) from Ba3 (LGD3, 42%)
Outlook -- Stable RATINGS RATIONALE The Ba3 CFR rating is supported by Indigold Carbon's strong operating results since the acquisition by the Aditya Birla Group. The company has outperformed our expectations in 2012, and has expanded margins to record levels, such that its credit metrics will remain supportive of the Ba3 CFR with the additional $350 million of debt. Indigold Carbon's leverage is expected to be 3.8x (as of June 30, 2012, pro forma for the proposed financing and inclusive of Moody's standard analytical adjustments), which is slightly lower than the debt/EBITDA metric it had after the acquisition by the Aditya Birla Group (4.0x).
The CFR is also supported by the stable demand profile for carbon black (relative to other commodity chemical businesses), the company's strong market positions as one of the top three global producers, long-term customer relationships, and geographic diversity with operations in all major regions. Indigold Carbon offers a complete product line from commodity carbon blacks to higher margin specialty carbon blacks. Pressuring the ratings are meaningful customer concentration, modest global demand growth, exposure to volatile energy and petroleum-based feedstock costs, limited product diversity (carbon black) and commodity nature of the majority of the company's carbon black business.
The stable outlook reflects our expectation that the carbon black market will continue to grow at GDP-like rates, the company will maintain its margins and will generate positive free cash flow. Upside to the rating is limited due to the leverage, size of the company (annual revenues of approximately $1.5 billion), the commodity nature of the majority of its products, and recent volume softness, but a positive outlook could be considered should the company be able to reduce leverage toward 3.0x on a sustained basis. Any decline in EBITDA margins prior to the firm de-levering, or increase in leverage above 4.5x on a sustained basis could result in a downgrade of the ratings.
Indigold Carbon has a good liquidity position, supported by the cash balances ($21 million as of 9/30/2012, pro forma for the transactions), positive free cash flow, and full availability under its $75 million revolving credit facility. The company is expected to remain in compliance with its leverage and coverage financial covenants, which are not changing with the amendment to the existing credit facility.
The principal methodology used in rating Indigold Carbon was the Global Chemical Industry Methodology published in December 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
Indigold Carbon (Netherlands) BV (Indigold Carbon) is a holding company formed in connection with the acquisition of Columbian Chemicals Acquisition LLC (Columbian Chemicals) by the Aditya Birla Group (Birla) in June 2011. The Birla carbon black business and Indigold Carbon business, on a combined basis, constitute the largest global carbon black producer with 17 production facilities. Revenues for the year ended June 30, 2012 were $1.5 billion.
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