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Moody’s changes KME view to negative
Moody’s Investors Service said it changed the outlook for KME SE to negative from positive and affirmed the B3 corporate family rating, B3-PD probability of default rating as well as the B3 rating of the €300 million senior secured notes due 2023.
The change of the outlook to negative mirrors the increased risk KME’s leverage will continue to remain above 6-6.5x debt/EBITDA for the next 12-18 months. Moody’s-adjusted leverage does not include significant levels of undisclosed non-recourse factoring which Moody’s considers to be effectively part of the company’s debt.
“This rating action is driven by continued excessive leverage which increased to 7.1x Moody’s-adjusted debt/EBITDA in the 12 months ended September 2019 from 6.7x in 2018,” said Goetz Grossmann, Moody’s lead analyst for KME in a press release. “Credit metrics have not improved as expected over the last two years and uncertainty persists regarding the company’s ability to improve operating profitability materially.”
The company has also used €471 million of borrowing base facility by way of letters of credit which add further to the stretched nature of the capital structure. “In addition, KME’s absolute EBITDA generation has not improved as expected since 2018 with prospects of more meaningful increases being based on synergies following the acquisition of MKM. Furthermore, the significant use of the borrowing facility and factoring programs puts pressure on the company’s liquidity profile. The company will need to strengthen its liquidity in the next 12-18 months, including through planned improvements in working capital to remain in the current rating category,” Moody’s said.
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