Moody's Investors Service has upgraded the provisional (P)Ba2 MTN ratings and the Ba2/(P)Ba2 ratings on the notes outstanding to (P)Ba1 and Ba1, respectively of HeidelbergCement AG and its subsidiaries. The Ba1 coporate family rating (CFR) and the stable outlook remain unchanged.
The upgrade of HeidelbergCement's MTN and bond ratings follows the signing of a new five year EUR3bn revolving credit facility that removes all securities and upstream guarantees contained in the previous facility. Consequently, Moody's views the new facility to rank "pari passu" with all other outstanding debt in HeidelbergCement's debt waterfall, except for trade claims that remain in first place. This however eliminates the structural subordinated position of the noteholders and consequently brings the ratings of the instruments and the EMTN programme at the same level as the CFR, Moody's notes.
The rating's agency notes that the Ba1 rating positively reflects the German cement major's:
• strong market position
• good geographic diversification, which should help offsetting weaknesses in some markets with better performance in other markets and therefore lead to more stable results in an otherwise cyclical industry
• management's commitment to restore its balance sheet, as shown with the sizeable rights issue in 2009 and the continued payout of a relatively small cash dividend
• Moody's expectation of further improving capital structure - albeit only gradually and
• the strong short term liquidity situation with proven ability and willingness to refinance through bond markets, even during periods of difficult market conditions.
The rating negatively reflects:
• HC's still high, although gradually improved, leverage'
• lower exposure to more strongly growing, although more volatile, emerging markets than certain peers , and some dependency on the US, and
• the exposure to a material adverse change clause and financial covenants in the company's financing arrangements, which somewhat weakens its liquidity situation, which is however otherwise considered as solid.
Liquidity
Moody's believes HC has a sound liquidity profile. "The liquidity position of the company for the next 12 months starting October 2013 is supported by the company's unrestricted cash balance of EUR1.2bn and availability of the newly signed EUR3bn committed revolving credit facility maturing in 2019," it states. Combined with the operating cash flows (before working capital) that Moody's would expect HC to generate, it anticipates that these sources will be sufficient to cover the company's short-term liquidity needs over the next 12 months. These needs mainly consist of capex, debt repayments, modest dividends and day-to-day cash requirements. The company's liquidity facility includes financial covenants with currently adequate headroom.
Stable outlook
The stable outlook assigned to the ratings incorporates the expectation that (i) HC will continue to focus on cost cutting and deleveraging to keep Debt / EBITDA below 4.0x and RCF / Net debt to move to above 15 per cent over time, (ii) the company will continue to maintain a conservative dividend payout to preserve cash flows generated for debt reduction, and (iii) that the company will continue to benefit from supportive market conditions in its key geographies, which will support the group's efforts in further reducing leverage to achieve a capital structure in line with an investment grade rating over time.
