Investing.com -- Moody’s (NYSE:MCO) Ratings has downgraded the credit rating of Celanese (NYSE:CE) US Holdings LLC, a global producer of acetyls and engineered thermoplastics, from Baa3 to Ba1, citing challenges under uncertain market conditions and inconsistent credit metrics. The rating agency has assigned a Ba1 Corporate Family Rating, a Ba1-PD Probability of Default Rating, and an SGL-2 Speculative Grade Liquidity Rating to Celanese. The review for downgrade was initiated on November 5, 2024, and has now been concluded.
The downgrade reflects Moody’s expectation that Celanese’s credit metrics will remain inconsistent with an investment-grade rating for an extended period due to business execution challenges. Factors such as higher interest rates in the US, weak automotive and industrial activities in Europe, and sluggish real estate investments in China have dampened the prospects of a speedy demand recovery for Celanese’s acetyls and engineered materials.
Celanese faces the challenge of maintaining its market leadership and meeting earnings forecasts while working to lower its cost base and reduce debt. The company is expected to refinance, rather than repay, a large portion of its $1.3 billion debt due in 2025 and another $1.4 billion due in 2026. The company’s total debt reduction from $13 billion to about $10 billion will be delayed, making it impossible to achieve the 3.5x debt/EBITDA required for the previous Baa3 rating for several years.
Celanese, however, is expected to generate $600 million to $700 million free cash flow per annum and complete asset divestitures, which will allow debt leverage to approach 4.5x by the end of 2026. The company’s rating is supported by its substantial scale (about $10 billion in revenues) and greater than 20% EBITDA margin in both of its main businesses (Engineered Materials and Acetyls).
The negative outlook reflects the challenges of improving earnings and executing asset divestitures to reduce debt leverage against an uncertain macroeconomic backdrop. Celanese’s SGL-2 is supported by its large cash balance ($813 million at the end of September 2024), free cash flow, expected asset divestitures, $1.63 billion availability under the $1.75 billion revolver, and a $1 billion 364-day delayed draw term loan.
Celanese’s Credit Impact Score of CIS-3 indicates that Environmental, Social and Governance (ESG) considerations have a limited impact on the current credit rating with potential for greater negative impact over time. The company’s $11 billion debt-funded acquisition of DuPont’s M&M business in 2022 resulted in high debt leverage. Environmental risks are significant for chemical companies due to the amount of waste and pollution.
Celanese Corporation, headquartered in Irving, Texas, acquired the majority of DuPont de Nemours (NYSE:DD), Inc.’s M&M business in an all-debt financed transaction in 2022. Celanese US Holdings LLC is the main issuer of corporate debt and is a co-borrower under the credit facilities.
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