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BASIC INDUSTRIES: Glencore (A3/BBB+/NR): Moody’s Upgrade

BASIC INDUSTRIES
  • Moody’s surprised yesterday with an upgrade mainly on the back of its recent performance rather than explicit metric improvements. It appears Moody’s is impressed by its consistency and perhaps views the business as less cyclical as it previously did. They note Glencore has exited several high-risk operations.
  • They expect gross leverage to remain below 2x post the acquisition of EVR’s coal assets, no surprise there as we see a modest 0.2x turns increase.
  • The move leaves GLENLN spreads not only wide to low single A but also wide to nearly all high triple B Industrials. The upgrade failed to take spreads any tighter yesterday.
  • ESG considerations bring a technical negative, with the decision to retain coal assets previously slated for divestment impacting its score. Credit stress at the bottom of the last commodity cycle is still in investors’ memories also.
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