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Nexeo Plastics Holdings, Inc. -- Moody's says Nexeo Plastics' consent request to increase its existing secured notes by up to $75 million will not impact ratings or the outlook

·11 min read

Announcement: Moody's says Nexeo Plastics' consent request to increase its existing secured notes by up to $75 million will not impact ratings or the outlook

Global Credit Research - 14 Jan 2021

New York, January 14, 2021 -- Moody's Investors Service, ("Moody's") stated that the announcement this morning by Nexeo Plastics Holdings, Inc. (Nexeo Plastic) to solicit consent to increase its permitted existing senior secured notes by up to $75 million would increase debt and leverage but is viewed as having no impact on its ratings or the outlook at this time. The use of proceeds of any increase in debt is limited to financing a permitted acqusition, giving Nexeo Plastics additional flexibility to finance a potential acquisition. The company also recently increased its ABL facility by $25 million. Moody's assumes any acquisition will be an appropriate fit with the company and not stress the balance sheet beyond what is currently expected. Moreover, Nexeo Plastics is expected to improve its earnings and free cash flow in the next twelve months through cost reduction efforts and the expected recovery from the COVID-19 pandemic. Despite what's likely to be a challenging beginning to the year due the coronavirus, volume growth is likely to trend favorably beyond the near term.

The company benefits from leading market share positions in plastics distribution in North America and Europe, generally stable margins on a multi-quarter and annual basis, expectations for positive free cash flow and good end-market diversification. Other positive factors in the credit include a proprietary IT system that provides operational advantages, an asset-light model that requires minimal capex, and prospects for growth due to secular changes in the plastics supplier industry. The profile also reflects the company's modest scale, high balance sheet leverage, low operating margins, and supplier concentration. Adjusted Debt/ EBITDA is expected to improve to the mid 5x range in the next twelve to fifteen months. However, Adjusted net debt / EBITDA, which Moody's currently focuses on should be below 5.0x over the same time period. Moody's expects the company to pursue additional M&A activity, but with an emphasis on small or bolt-on acquisitions.

The stable outlook assumes leverage is managed below 5.0x, and EBITDA margins remain stable and do not deviate much from the mid-4% range on an annual basis. Moody's would consider a downgrade if leverage were to rise above 5.0x or if EBITDA margins contract below 4.0%, either on a sustained basis, or if free cash flow declines below $10 million per year. Diminished liquidity could also trigger a review or downgrade of the ratings.

Nexeo Plastics Holdings, Inc., based in The Woodlands, Texas, is a leading plastics distributor in North America and Europe and maintains longstanding relationships with over 150 plastics suppliers and a diverse base of about 11,000 downstream plastic customers. Supplier concentration is a risk in the credit as the top 10 suppliers represent about 75% of plastics supplied. Customers are less concentrated with the top 10 customers representing only about 7% of all customers. Annual revenues for LTM 30 September 2020 were roughly $1.5 billion.

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.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Joseph Princiotta Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Glenn B. Eckert Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653

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