Compass Minerals International Inc. Downgraded To #BB-# On Weak Pro Outlook Negative

Stocks and Financial Services Press Releases Tuesday May 15, 2018 10:22
DALLAS--15 May--S&P Global Ratings

DALLAS (S&P Global Ratings) May 14, 2018-- S&P Global Ratings today lowered its corporate credit rating on Overland Park, Kan.-based Compass Minerals International Inc. to 'BB-' from 'BB'. The outlook is negative.

In addition, we lowered the issue-level rating on the company's senior secured notes to 'BB' from 'BB+'. The recovery rating for the secured debt remains '2', indicating our expectation of substantial (70%-90%; rounded estimate: 80%) recovery in the event of a default.

We also lowered the issue-level rating on the company's senior unsecured debt to 'B+' from 'BB-'. The recovery rating remains '5', indicating our expectation of modest (10%-30%; rounded estimate: 25%) recovery in the event of a default.

The downgrade reflects our expectations that leverage will remain in the 4x-5x range, with EBITDA margins of around 22% over the next year. Our negative outlook takes into account our view that ongoing operational and cost challenges could delay the company's return to producing positive discretionary cash flow (DCF, operating cash flow less capital spending and dividends) despite modest demand recovery in the salt and plant nutrition segments over the next 12–18 months.

The negative outlook indicates there is at least a 1-in-3 chance that we could lower the rating within the next year. We anticipate that the demand recovery in the company's segments will support leverage at the lower end of the 4x-5x range by the end of the year. However, in on our view, leverage could rise above 5x over the next 12 months if ongoing operational challenges are prolonged or aggravated.

We could revise the outlook to stable if Compass consistently produces positive DCF. In this scenario, we would expect leverage to fall toward the lower end of the 4x-5x range, buoyed by expanding EBITDA. This could happen if Compass resolves operational issues and if favorable demand conditions boost volumes, resulting in economies of scale that reduce costs.

We could lower the rating if the adjusted debt to EBITDA ratio increases above 5x on a sustained basis. This could happen if the consistent sales we anticipate will continue stall and operational challenges further increase costs, causing adjusted EBITDA to fall below $250 million. We believe that in this scenario, the company would have limited ability to generate positive DCF, leading to increased borrowings under its revolving credit facility, further contributing to a higher leverage.

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