Investor services revises Rhodia outlook to negative
for the unsecured debt securities of French ingredients company
Rhodia. At the same time it has changed the outlook on the ratings
from stable to negative. These actions conclude a rating review
initiated in January 2002, and follow an in-depth discussion with
Rhodia senior management on the prospects for the group in 2002 and
beyond.
Moody's Investors Service has confirmed the Baa3/Prime-3 ratings for the unsecured debt securities of French ingredients company Rhodia. At the same time it has changed the outlook on the ratings from stable to negative. These actions conclude a rating review initiated in January 2002, and follow an in-depth discussion with Rhodia senior management on the prospects for the group in 2002 and beyond.
The rating confirmation was reached following certain expectations. These include: Moody concluded that 2001 was a tough year for Rhodia's earnings and cash flow and that there will be a modest improvement in EBITDA this year despite only weak volume demand growth for its products; debt reduction through some limited free cash flow generation and success in achieving at least several hundred millions in proceeds from disposals by year-end 2002; Moody's view that liquidity levels are adequate; and management is committed to debt reduction and will not undertake debt-financed acquisitions in the near term.
The change in outlook from stable to negative reflects the weak financial positioning of the credit at year-end 2001 as well as continued uncertainty about an economic recovery during the second half of 2002, some lack of clarity about the extent of raw material price benefits to accrue to the group in 2002, in particular in light of recently higher crude oil prices, and finally the need for management to execute on its disposals plan which Moody anticipates will be challenging in the current environment.
On a positive note, Moody's Investors Service's confirmation of Rhodia's ratings reflects its belief that during the course of 2002, the company will be able to achieve modest growth in EBITDA despite expectations of continued weak (though improving demand) during the course of this year. This improvement is expected to come from cost savings derived from substantive restructuring programmes initiated in 2001 and expectations of a somewhat lower raw material price environment relative to 2001 (in 2001 this accounted for an adverse €166 million negative impact), and some modest demand turnaround in certain markets.
