Moody’s downgrades Nexeo

Moody’s Investors Service said it downgraded Nexeo Solutions, LLC’s corporate family rating to B3 from B2.

The downgrade results from continued weak credit metrics following two acquisitions, Moody’s said.

Higher integration costs and slow profitability improvement of these deals has kept leverage well above levels that support a B2 rating, the agency said.

Moody’s also said it downgraded the company’s probability of default rating to B3-PD from B2-PD, along with the rating on its $325 million guaranteed senior secured term loan B-1 due 2017 to B3 (LGD 4) from B2 (LGD 4), $175 million senior secured term loan B-2 due 2017to B3 (LGD 4) from B2 (LGD 4), $170 million senior secured term loan B-3 due 2017to B3 (LGD 4) from B2 (LGD 4) and $175 million guaranteed senior subordinated notes due 2018 to Caa2 (LGD 6) from Caa1 (LGD 6).

Nexeo Solutions Holdings, LLC and Nexeo Solutions Sub Holding Corp. are as co-borrowers under the B-3 term loan and ABL facility.

The outlook was revised to stable from negative.

Nexeo’s elevated leverage and low profitability is partially offset by good liquidity, which delayed a downgrade immediately after the acquisition announcements, Moody’s said.

The ratings reflect the company’s sustained high leverage, which is currently at 7.8x as of Dec. 31, 2014, along with its inconsistent free cash flow generation, low EBITDA margins of 3.3% and working capital fluctuations, the agency said.

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