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BASIC INDUSTRIES: Lanxess (LXSGR Baa3[N]/NR/NR): Moody’s Rating

BASIC INDUSTRIES

Lanxess making the right noises here, but leverage remains uncomfortably high for the rating.

  • To clarify our earlier bullet, Moody’s has gross leverage “clearly above 3.5x on a sustainable basis“ as a potential downgrade trigger. This asset sale brings expected reported gross leverage to around 4.6x, but Moody’s adjusted will be higher.
  • RCF/net debt has a “below the low to mid-teens on a sustainable basis” threshold, which is comfortable at 17% pre asset sale, 21% post.
  • Moody’s is vague on margins saying adj. EBITDA margins below 14% “could reflect fundamental weaknesses… which could point to negative rating pressure.” Reported margins peaked at 13% in 2019 with 8.5% expected next year; that should improve from here.
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Lanxess making the right noises here, but leverage remains uncomfortably high for the rating.

  • To clarify our earlier bullet, Moody’s has gross leverage “clearly above 3.5x on a sustainable basis“ as a potential downgrade trigger. This asset sale brings expected reported gross leverage to around 4.6x, but Moody’s adjusted will be higher.
  • RCF/net debt has a “below the low to mid-teens on a sustainable basis” threshold, which is comfortable at 17% pre asset sale, 21% post.
  • Moody’s is vague on margins saying adj. EBITDA margins below 14% “could reflect fundamental weaknesses… which could point to negative rating pressure.” Reported margins peaked at 13% in 2019 with 8.5% expected next year; that should improve from here.