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Moody’s rates Element loans B1
Moody's Investors Service said it affirmed Element Materials Technology Ltd.'s B2 corporate family rating and B2-PD probability of default rating and assigned a B1 rating to the new $720 million first-lien term loan B due 2024 issued by Greenrock Finance, Inc. and Element Materials Technology Group US Holdings Inc., B1 ratings to the new $100 million revolving credit facility due 2023 and $50 million capex/acquisition facility due 2024 issued by Greenrock Finance, Greenrock Midco Ltd. and Element Materials Technology Group US Holdings and B1 ratings to the new £160 million first-lien term loan B due 2024 and €204.2 million first-lien term loan B due 2024 issued by Greenrock Midco. The outlook is stable.
Element will use the proceeds of the first-lien term loans B, a new $230 million second-lien facility due 2025 (not rated), $20 million of cash and $250 million of equity contribution from shareholders and management to fund the acquisition of Exova Group plc for £620.3 million, to refinance Element's current debt and to provide $40 million of cash overfund.
The agency said the rating action reflects the positive contribution from Exova to Element's business profile, the good track record of the company in integrating bolt-on acquisitions, although the scale of the Exova transaction will require significantly more time and resources, and the good pro forma liquidity position supported by the cash overfund and availability under the revolver as well as the projected positive free cash flow generation.
However, Moody’s said these positive factors are partly mitigated by the significant increase in Element's adjusted gross leverage to 7.0x pro forma for the acquisition of Exova as of Dec. 31 (pre-synergies) from 5.3x prior to the transaction, the inherent execution risks related to the implementation of such synergies and the expectation that continued softness in the oil and gas segment will constrain group revenue growth over the next 18 months below its longer-term trend.
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