Rating Action: Moody’s assigns B2 rating to Olympus Water’s incremental term loanGlobal Credit Research – 25 Mar 2022New York, March 25, 2022 — Moody’s Investors Service (“Moody’s”) has assigned a B2 rating to Olympus Water US Holding Corporation’s (“Olympus Water”) proposed $300 million incremental senior secured term loan. The company’s B3 Corporate Family Rating (“CFR”), B3-PD probability of default rating, B2 ratings on the existing first lien term loan and senior secured notes, as well as the Caa2 rating on the senior unsecured notes remain unchanged. However, the secured debt risks a rating downgrade, if the company issues any additional first lien debt or the proportion of first lien debt increases further relative to the unsecured debt. The proceeds of the incremental term loan will be used to reduce the outstanding amount of the asset-based revolving credit facility and raise its cash balance for business operations. The ratings outlook is stable.Assignments:..Issuer: Olympus Water US Holding Corporation….Senior Secured Term Loan B, Assigned B2 (LGD3)RATINGS RATIONALEThe incremental debt issuance highlights the company’s higher working capital needs as a result of strong demand, cost inflation, inventory buildup ahead of the pool season, safety stock to mitigate supply chain challenges and other contingencies after the merger of Solenis and Sigura. Olympus Water has recently drawn about $200 million from its ABL revolver. The incremental term loan will free up the availability under the revolver and raise the company’s liquidity (cash and revolver) to over $500 million.Olympus Water’s rating is constrained by the aggressive financial leverage with about $4.1 billion gross debt (including the incremental term loan). The profit margin of its mature water treatment business will likely reverse to more normalized levels in the next several years after hitting record high in 2021, due to its exposure to commodity products and the lack of cost passthrough mechanism for most of its products. However, good demand for water treatment chemicals and tight supply conditions will allow the company to pass on most of its cost inflation to customers and keep its earnings elevated, albeit lower than 2021, in the next 12-18 months compared to historical levels. As large transaction-related expenses have already been paid, we expect the company to use free cash flows to reduce debt and improve its debt leverage to below 7x in the next two years. Management also indicated potential earnings growth in areas such as consumer and food packaging and value-added services.Olympus Water’s rating reflects its leading market positions in water treatment for pulp and paper manufacturers, industrial customers, municipalities, residential and commercial pools. The critical nature of water treatment and the company’s well established customer relations lead to good business visibility and recurring revenues. The rating is also supported by Olympus Water’s large business scale, a diverse customer base in many industries and globally diversified business operations.The $300 million incremental term loan ranks pari passu with the existing $1.7 billion senior secured first lien term loans and the $1.4 billion senior secured notes. They are rated B2, one notch above the B3 CFR, reflecting their preferential position in the capital structure and the loss absorption cushion provided by the senior unsecured notes and other unsecured obligations. Both the first lien term loans and secured notes share the first priority lien on substantially all the fixed assets and second priority lien on all ABL collateral. The $700 million senior unsecured notes are rated Caa2, two notch below the B3 CFR, due to the effective subordination to a substantial amount of secured debt.Olympus Water’s adequate liquidity is supported by its available cash on hand, expected free cash flows and availability under the new 5-year $500 million ABL revolver. The ABL revolver contains a springing consolidated fixed charge coverage covenant set at 1.00x. The covenant springs into effect if the ABL revolver’s availability is less than the greater of 10% of the line cap or $25 million. Moody’s expects the company to remain compliant with this covenant.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGMoody’s could upgrade the rating with expectations for the company to improve profitability, reduce adjusted leverage to below 6 times on a sustained basis, and generate strong free cash flows. Moody’s could downgrade the rating with expectations for declining volumes, declining profitability, or adjusted financial leverage above 8 times, negative free cash flow or diminishing liquidity. The B2 ratings on the secured term loans and notes could be downgraded, if the company continues to issue secured debt or the proportion of secured debt increases further relative to the unsecured debt.Olympus Water US Holding Corporation (which comprises Solenis and Sigura) produces chemicals used in the manufacturing process for pulp and paper products, industrial and municipal water treatment, pool and spa markets. Its products and service help customers improve operational efficiency, enhance product quality and reduce environmental impact. In late 2021, Platinum Equity Advisors, LLC acquired Solenis from Clayton, Dublier, and Rice and BASF and combined Solenis with its existing portfolio company Sigura to form Olympus Water. The company has a pro-forma sales of about $3.5 billion.The principal methodology used in this rating was Chemical Industry published in March 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1152388. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. 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Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Jiming Zou, CFA Vice President – Senior Analyst Corporate Finance Group Moody’s Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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Olympus Water US Holding Corporation — Moody’s assigns B2 rating to Olympus Water’s incremental term loan
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