S&P gives Bakelite UK B, loans BB-

S&P said it gave a B issuer rating to Bakelite UK Holding Ltd. and BB- issue and 1 recovery rating to its $485 million senior secured term loan due 2028. The company also plans to execute a $100 million asset-based revolver due 2027. Bakelite’s subsidiary Bakelite US Holdco Inc. will borrow the loans.

Bakelite UK is acquiring Georgia-Pacific LLC's chemicals unit for $425 million. It plans to use the term loan and $138 million in new common equity provided by its owners Black Diamond and Investindustrial.

“Though the equity contribution is considerable and results in a manageable level of debt leverage in the 3x area, we are uncertain as to the longevity of the owners' commitment to prudent financial policy. Typically, financial sponsors have finite holding periods and it is common for them to maximize shareholder returns via debt-increasing dividend recapitalization transactions. In this situation, the company's financial decisions are controlled by two equal partners instead of one sole owner, which adds uncertainty,” S&P said in a press release.

“We expect the company's adjusted EBITDA margins to average 12%-13% during the next two years, which is low relative to other specialty chemicals producers. Bakelite's profitability may be more analogous to its key competitor Hexion's, but falls a bit short of those of other composites and coatings companies like Polynt (14%-16%) and AOC (more than 20%),” the agency added.

The outlook is stable.

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