Moody's downgrades Xella

Moody's Investors Service said it downgraded the corporate family rating of LSF10 XL Investments Sarl (Xella) to B3 from B2 and the probability of default rating to B3-PD from B2-PD.

Concurrently, Moody's lowered the ratings on the €1.674 billion senior secured term loans B and €175 million senior secured revolving credit facility issued by LSF10 XL Bidco SCA and guaranteed by LSF10 XL Investments to B3 from B2.

“Moody's expects a deep recession in Europe in 2020 that will diminish demand for Xella's products. Lockdowns and social distancing are disrupting construction activity and supply chains, raising the risk of project delays and cancellations. Moreover, Moody's anticipates that the eventual pick-up in construction activity, once the lockdowns are lifted, will only be gradual and companies with large exposure to new-build construction such as Xella will be more affected by a drop in business activity,” the agency said in a press release.

“Consequently, Xella's already significant financial leverage (Moody's adjusted gross debt/ EBITDA of around 6.8x in 2019), which was already high for the previous B2 rating, will likely deteriorate in 2020 and will remain elevated also in 2021. And even on a net leverage basis (Moody's adjusted net debt/ EBITDA was 5.6x in 2019), the metrics will likely exceed the 6x threshold in the next 12-24 months,” Moody’s said.

Moody’s changed the outlook on the two entities to stable from negative. “The stable outlook reflects Moody's expectation that the company's solid liquidity would allow it to cushion the earnings and cash flow setback in 2020 while the recovery in the following year would enable credit metrics to return to metrics more commensurate with its B3 rating,” the agency said.

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