S&P rates Herens B

S&P said it assigned preliminary B ratings to Herens Midco Sarl (Lonza Specialty Ingredients) and its planned senior secured debt.

Bain Capital and Cinven agreed to acquire Lonza Specialty Ingredients from Lonza Group Ltd. for an enterprise value of CHF 4.2 billion. The transaction is expected to be financed with CHF 2.7 billion of debt.

S&P said it sees LSI growing its revenue by 4%-4.5% per year in 2021-2022, thanks to continued demand for its microbial control products and its strong position in diverse and resilient end markets.

“We forecast a large uplift to profitability from 2021, as LSI aims to increase the share of specialty products in the sales mix through a strategic shift toward higher-margin microbial control solutions and the exploitation of attractive niche areas in specialty chemical services. Our base-case adjusted EBITDA margin and related credit metrics also incorporate a gradual realization of the proposed cost-saving that will result from LSI operating as a stand-alone entity,” S&P said in a press release.

The outlook is stable, indicating an expectation that LSI will generate positive free operating cash flow of CHF 115 million-CHF 135 million in 2022, notwithstanding S&P Global Ratings-adjusted debt to EBITDA of 7.3x-7.5x in 2022, a decrease from about 8x-8.2x in 2021, the agency said.

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