Moody’s eyes Atotech for upgrade

Moody’s Investors Service said it placed Atotech UK Topco Ltd.'s B1 corporate family rating and its B1-PD probability of default rating on review for upgrade. Concurrently, Moody's placed the B1 ratings of the guaranteed senior secured term loans of $1.35 billion and €200 million due in 2028 and the $250 million guaranteed senior secured revolving credit facility due in 2026, all co-borrowed by Alpha 3 BV, Alpha US Bidco, Inc., Atotech BV and other entities on review for upgrade.

The outlook has been changed to under review from stable for both issuers. The decision by Atotech’s board to accept MKS Instruments, Inc.’s proposal to acquire the company in a cash and stock deal prompted the review, the agency said. Moody’s placed MKS on review for downgrade.

“While the acquisition will expand MKS' revenue scale and diversify its revenue and customer base, it will also result in a substantially higher leverage. Moody's estimates that MKS' debt to EBITDA will increase from 1.6x (12 months ended March 31, 2021, Moody's adjusted) to about 5.8x (pro forma combined 12 months ended March 31, 2021, excluding synergies, Moody's adjusted), or about 5.5x including anticipated cost synergies ($50 million to be achieved over 18 to 36 months). This level of financial leverage is high given the integration execution risks,” Moody’s said in a press release.

The review will consider the effect of the transaction on MKS' credit profile and details on the capital structure of the larger company with respect to Atotech's current debt instruments and any plans to refinance Atotech's debt, Moody’s said.

The agency also said it could raise Atotech’s ratings by more than a notch and that any downgrade for MKS would be limited to a notch.

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