Constellium aims for 2.5x, has good liquidity despite sluggish European recovery

By Devika Patel

Knoxville, Tenn., June 9 – Constellium SE intends to get its net leverage down to 2.5x but is uncertain how long it will take to get there, largely due to the uncertain market conditions and sluggish recovery from the Covid-19 pandemic in Europe.

The company has plenty of liquidity after putting in place four European bank facilities, three of which are undrawn, but has yet to determine how it will address debt coming due in 2021.

“We like the 2.5x net leverage target,” chief executive officer Marc Germain said at the virtual Deutsche Bank 2020 Global Industrials & Materials Summit on Tuesday.

“That’s where we want to be headed.

“The question is when and that’s where we need a bit more clarity in terms of where the markets are going and [the current uncertainties] make it very difficult to ascertain when can we hit that number.

“We are very committed to, over time, whatever that time period needs to be, bring down our leverage and get to a place where our target leverage is 2.5x,” Germain said.

The company had liquidity of €616 million at the end of the first quarter and has put in place several European bank facilities for a total of €400 million of incremental liquidity since then.

“With the cash burn that we’re expecting, it leads us to feel confident that we have more than adequate liquidity,” executive vice president and chief financial officer Peter Matt said on the call.

“This financing that we put in place is all at really attractive rates, so it’s not like we’re going to burn up the income statement with a lot of additional interest charges and in fact three of the four facilities are undrawn,” Matt said.

The company has notes due in 2021 and is exploring all options on how to address the maturity.

“If we look at the balance sheet more broadly, we do have the 2021 [notes] still outstanding,” Matt said.

“Those are due in May of 2021.

“We feel like we’ve got lots of options in that regard.

“With the liquid resources that we have on the balance sheet, we could pay them down, obviously.

“There are capital markets options, so we’re looking at all of those very carefully and we’ll in good time take care of that maturity and then after that the next maturity we have is a 2024 maturity,” Matt said.

The company is expecting a weak year and possibly a weak 2021.

“To what extent? I think it’s very difficult to tell,” Germain said of potential weakness in 2021.

Management is still optimistic, despite the fact that Europe lags North America in its recovery.

“I remain cautiously optimistic,” Germain said.

“It’s true that America seems to be recovering a bit faster than Europe, but even in Europe we’re seeing some good signs on the horizon.

“I think Europe is a little bit weaker this year, but will resume growth going into 2021 for sure,” Germain said.

Management believes the company can withstand this crisis, thanks to cost-saving measures and Constellium’s free cash flow generation.

“We acted very quickly and decisively on the cost structure and I’m pleased to say that we have seen those actions take root and we are going to be extremely cautious, as business conditions improve, to bring costs back up,” Germain said.

“The ability of this company to generate free cash flow when things are good and withstand a very severe crisis, I think we’re seeing the benefit of that right now as we speak,” Germain said.

Amsterdam-based Constellium makes value-added aluminum products.

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