EUR 407.14 For Business Accounts Only

PERSTORP - New Issue Comment

TRANSACTIONS SUMMARY

Swedish specialty chemicals company Perstorp is issuing €250m of 5NC1 senior secured FRN (expected ratings: B-/B3). They will be used to redeem the 2021 existing senior secured FRN and a portion of the 2021 senior secured fixed notes. In the meantime a SPV (Prague S.à.r.l) is issuing €235m of 6NC1.5 senior subordinated notes (expected ratings: CCC-/n.a.) which, along with €49m of subordinated loan, will be used to acquire the mezzanine loan. The SPV will become the sole owner of the mezzanine loan.

WE REITERATE OUR NEGATIVE CREDIT VIEW

These transactions are broadly neutral from a credit standpoint. Perstorp has some undeniable operating strengths and we acknowledge the strong 2017 operating performance, which has been clearly better than our expectation. However, despite record high EBITDA, Perstorp is still not able to be FCF positive on an annual basis due to very high interest expenses representing more than half of its EBITDA. Therefore, we are not comfortable with such a high level of debt, which is in our view incompatible with a cyclical and capital-intensive industry, leaving the company at risk in the event of a market downturn. In order to reduce its net debt, Perstorp will have to continue to dispose of some assets. A sale of the Capa business would certainly come as no surprise as in the bond prospectus it is specifically indicated what would be granted to bondholders in the event of such a sale.