Fitch Ratings has affirmed the Issuer Default Rating (IDR) and outstanding debt ratings on Rockwood Specialties Group, Inc. (Rockwood) as follows:
--IDR at ''B'';
--Senior secured revolving credit facility at ''BB/RR1'';
--Senior secured term loans at ''BB/RR1''.
Fitch has also downgraded the senior subordinated notes to ''B-/RR5'' from ''B/RR4'' given reduced recovery prospects on the issue taking into account the 100% recovery prospects on the senior secured facilities and carving out the Titanium Dioxide Venture earnings and facilities.
The Rating Outlook is Negative.
Rockwood''s ratings reflect leading positions in many of its product lines, diversification by market and end-use, and good profit margins.
Financial leverage is high and expected to remain so over the next 12-18 months given reduced earnings. Fitch expects total debt/Operating EBITDA (as calculated by Fitch) to exceed 5.5x for the period.
Liquidity is quite strong with cash on hand at June 30, 2009 of $197.7 million and $224.3 million available under the company''s $250 million revolver, of which $70 million expires July 30, 2010 and $180 million expires in 2012. Fitch expects cash generation after $160-$180 million capital expenditures for 2009 to comfortably service debt. Fitch estimates that scheduled amortization is moderate over the next two years.
The company has improved its liquidity through an amendment to its senior secured credit facilities completed on June 15, 2009 where $1.2 billion of term loans due 2012 were repaid with new notes due 2014. The company used cash on hand to purchase $153.2 million in principal of its subordinated notes at a discount as well as prepaying $102.3 million of its senior secured term loans. The amendment of net debt/Adjusted EBITDA covenant in favor of a net senior secured debt covenant allows for room to borrow under the revolver. For the twelve-month period ended June 30, 2009, the covenant maximum was 4.40:1.00, and the actual level was 3.27:1.00.
The Negative Outlook reflects Fitch''s expectations that earnings and cash flows will continue to be impacted by exposure to weakness in cyclical end markets such as construction and automotives.
Rockwood has been able to generate $130.6 million of net cash provided by operating activities that resulted in $49 million of free cash flow after $81.2 million of capital expenditures during the first half of 2009. Fitch expects stronger cash generation in the second half of 2009 given that the first quarter is seasonally weak. Deteriorating operating results which result in a cash drain could result in a downgrade.
Rockwood has strong liquidity, which should benefit it over the down-cycle. Any acquisitions that result in materially higher leverage or a substantial weakening of liquidity could result in a downgrade.
Rockwood is a global developer, manufacturer and marketer of high value-added specialty chemicals and advanced materials used for industrial and commercial purposes. Rockwood generated Adjusted EBITDA of $561 million on $2,971 million in revenues for the LTM ending June 30, 2009.
Additional information is available at ''www.fitchratings.com''. The issuer did not participate in the rating process other than through the medium of its public disclosure.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY''S PUBLIC WEBSITE ''WWW.FITCHRATINGS.COM''. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH''S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE ''CODE OF CONDUCT'' SECTION OF THIS SITE.
Contacts:
Fitch Ratings, New York
Monica M. Bonar, +1-212-908-0579
Tom
Dohrmann, +1-212-908-0637
Cindy Stoller, +1-212-908-0526 (Media
Relations)
cindy.stoller@fitchratings.com
