Cyanco Intermediate 2 Corp. Assigned #B# Corporate Credit Outlook Secured Debt Also Rated

Stocks and Financial Services Press Releases Wednesday February 21, 2018 10:08
NEW YORK--21 Feb--S&P Global Ratings
NEW YORK (S&P Global Ratings) Feb. 20, 2018-- S&P Global Ratings today assigned its 'B' corporate credit rating to Cyanco Intermediate 2 Corp. The rating outlook is stable.

At the same time, we assigned our 'B+' issue-level rating and '2' recovery rating (70%-90%; rounded estimate 70%)on the company's first-lien credit facilities, consisting of a $50 million revolver and $380 million term loan. We also assigned our 'CCC+' issue-level rating and '6' recovery rating (0%-10%; rounded estimate 0%) on the company's $100 million second-lien term loan.

We expect to withdraw the issue-level ratings on the company's existing debt when it is fully repaid upon close of the transaction. We will also withdraw the existing corporate credit rating on Cyanco Intermediate Corp. at that time.

The 'B' corporate credit rating and stable outlook on Cyanco reflect our view that the sale to Cerberus does not result in significant changes to the company's credit risk. The transaction results in a modest increase in debt of about $100 million due to the new second-lien term loan (in addition to an upsizing of the revolving credit facility to $50 million from $15 million). We believe that weighted-average credit measures will remain appropriate for the ratings, including debt to EBITDA in the 5x to 6x range. We believe the company's narrow focus on sodium cyanide, high customer concentration, and private-equity ownership will continue to constrain the rating, despite favorable factors including a leading market position, long term contracts, and solid EBITDA margins.

The stable outlook reflects our view that Cyanco will continue to generate modestly improving EBITDA margins benefitting from volume increases and contracted price increases, and that the company will utilize free cash flow to pay down debt leading to modest credit metric improvement. Under our base case assessment, we expect that over the next 12 months the company will maintain debt to EBITDA between 5x and 6x, with free cash flow being prioritized to reduce debt.

We could raise the ratings by one notch over the next 12 months if the company bolsters its credit metrics by consistently paying down debt. We could consider an upgrade if weighted-average FFO to debt were above 12%, debt to EBITDA below 5x, and determined that these credit metrics were sustainable after taking into account financial policy decisions. In an upside scenario, we would expect stronger-than-expected gold prices leading to increasing gold mining and thus an increase in demand for sodium cyanide. We would also expect that there are no supply disruptions with Ascend Performance Materials, and the company experiences margin expansion from contracted price increases.

We could lower the ratings within the next 12 months if there is a significant drop off in operating performance due to an unexpected disruption at Cyanco or the gold mines it serves. In such a downside scenario, we would expect a 5% decrease in revenues, combined with a 5% drop in EBITDA margins from current projections, which would lead to a deterioration in debt to EBITDA to above 6x and FFO to debt dropping into the mid- to high-single-digits range. A loss of one of the three key customers, which generate over 50% of the company's revenue, or major disruptions at one of the company's two production facilities could produce such a scenario. Our downside scenario could also occur if a sustained drop in gold prices lead to decreased activity at Cyanco customers' gold mining operations. In addition, any supply-side disruptions could lead to weaker credit measures and a reassessment of the rating. We could also consider a lower rating if the company issued additional debt to fund dividends or acquisitions.


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