Moody’s gives Champion, loans B2

Moody’s Investors Service said it assigned B2 ratings to SCUR-Alpha 1503 GmbH’s (Champion) €2.9 billion equivalent (dollar and euro tranches) senior secured term loan B and its €375 million senior secured revolving credit facility. The agency also assigned the issuer a B2 corporate family rating and B2-PD probability of default rating. The outlook is stable.

The proceeds, an implied equity contribution of €3 billion (€1.8B from Advent International), PIK notes of €676 million and preferred equity of €200 million from Lanxess AG will be used to finance the acquisition of Royal DSM NV's DEM (engineering materials) business and Lanxess' high-performance materials business, pay related fees and expenses, and add cash to the balance sheet.

“The combination of DSM's DEM business and Lanxess AG's HPM business will create a top three player (estimated 2022 pro forma revenue of €3.7B) in the engineering materials market with the potential to deliver significant cost synergies and some revenue synergies. Both firms are among the top 10 engineering materials producers, with global footprints and diverse customer bases.

“Nevertheless, the company faces execution and integration risks including IT integration, headcount reductions and manufacturing optimization in combining two organizations with a global presence,” Moody’s said in a press release.

The agency estimates Champion will have a pro forma debt-to-EBITDA ratio of 6.75x, but sees it declining under 6x over the next 12-18 months.

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