Lion Copolymer Holdings LLC Assigned #B# Corporate Credit Outlook New Debt Rated #B+#

Stocks and Financial Services Press Releases Tuesday September 12, 2017 09:10
NEW YORK--12 Sep--S&P Global Ratings
NEW YORK (S&P Global Ratings) Sept. 11, 2017--S&P Global Ratings today assigned its 'B' corporate credit rating to Lion Copolymer Holdings LLC. The outlook is stable.

At the same time, we assigned our 'B+' issue-level rating to Lion Copolymer's $215 million term loan. The recovery rating on this facility is '2', indicating our expectation for substantial (70%-90%; rounded estimate: 80%) recovery in the event of payment default. The borrower on the credit facilities is Lion Copolymers Holdings LLC.

All ratings are based on preliminary terms and conditions.

The 'B' corporate credit rating on the company reflects our view of its site concentration, narrow product portfolio, and earnings volatility, as well as our expectation that Lion Copolymer will maintain its credit metrics, modest capital expenditures, and mid- to high-teens EBITDA margins. We also expect the company to continue to generate positive free cash flow.

The stable outlook reflects our expectation that Lion Copolymers will maintain operational performance levels commensurate with pro forma weighted-average FFO to debt of above 20%. We expect Lion to benefit from a favorable competitive landscape because anti-dumping tariffs were introduced for non-U.S. SBR producers in August. Our base case scenario assumes that management will remain committed to maintaining prudent debt leverage, and thus, we have not assumed any increases in debt to fund dividends or acquisitions. However, we note the potential that if attractive acquisition opportunities were to become available, the company could stretch its balance sheet to fund them.

We could lower our ratings on Lion Copolymers in the event that feedstock issues constrain Lion's production such that FFO to debt falls below 20% over several quarters, which could happen if margins or revenues decline by 200 basis points. We could also consider a downgrade if liquidity significantly weakens to a level whereby sources are less than 1.2x uses, or if, contrary to our expectation, the company completes a large debt-funded acquisition or dividend recapitalization.

Over the next 12 months, we could raise the ratings by one notch if operating performance exceeds our expectations such that FFO to debt exceeds 30% for a prolonged period. This could occur if growth in the company's higher-margin "hot" SBR segment outpaces our expectations or if end markets like roofing or replacement tires outperform our current projections.

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