Bangkok--4 Dec--Standard & Poor's
PARIS (Standard & Poor's) Dec. 4, 2014--Standard & Poor's Ratings Serviceslowered its long-term corporate credit rating on France-based aluminumproducer Constellium N.V. to 'B' from 'BB-'. The outlook is stable.
At the same time, we lowered the issue ratings on Constellium's €300 millionsenior unsecured bonds maturing 2021 and $400 million senior unsecured bondsmaturing 2024 to 'B' from 'BB-'. The recovery ratings on the bonds remain '4'.
We also assigned a 'B' issue rating with a recovery rating of '4' to theproposed euro- and dollar-denominated senior unsecured bonds totaling €535million equivalent, maturing in 2022.
The downgrade reflects Constellium's materially increased leverage followingthe fully debt-funded acquisition of U.S.-based aluminum can sheet producerWise Metals for an enterprise value of $1.4 billion. The transaction hasreceived all necessary approvals and is set to close at the beginning ofJanuary 2015.
The downgrade also takes into account the downward revision of our forecastfor Constellium's operating performance in the coming years. We now forecast2015 reported EBITDA of about €220 million-€240 million at Constellium'scurrent scope of businesses, reflecting probable delays in the aerospacesegment's performance and taking into account higher London Metal Exchange
(LME) aluminum prices and increased premiums in the physical aluminum market.Higher premium prices affect the profitability of some of the company'scontracts that don't have automatic pass-through clauses. Our base caseassumes EBITDA of about $140 million-$160 million at Wise Metals, which is
already largely contracted, bringing our total unadjusted EBITDA for thecombined entity to about €360 million-€370 million for next year (excludingconsolidation-related impacts or the effect of revaluations accounting).
We therefore expect Standard & Poor's-adjusted net debt to EBITDA to beslightly above 5.5x in 2015, the first full-year contribution of the acquiredbusiness, which compares with below 4.0x we would have expected for the 'BB-'rating pro forma the acquisition, which factored in some equity financing. We
also anticipate continued negative free operating cash flow in 2015-2017 dueto the company's continued capital spending on expansion, leading to furtherdebt increases, with adjusted debt to EBITDA rising to about 6.0x in 2016 and2017. We have therefore revised our assessment of Constellium's financial riskprofile downward to "highly leveraged" from "aggressive."
We continue to expect gradual EBITDA improvement in 2016-2017, supported byfundamentals in Constellium's underlying end markets and positive substitutiontrends, as well as further benefit from the announced expansion projects toexisting and newly acquired assets. Constellium's "fair" business risk profileis also supported in our view by its reasonable–-and improved–-geographic andend market diversity. Wise Metals' integration should bring the group's totalexposure to North America to about 30% from 14% previously. We also viewpositively its expansion in the can-for-beverage business, which we view asgenerally resilient, and in the body-in-white business for auto markets, whichwe expect to remain undersupplied in the coming years.