Solvay Finance (America), LLC. — Moody’s says Solvay’s decision to split into two companies does not affect its Baa2 senior unsecured ratings

Announcement: Moody’s says Solvay’s decision to split into two companies does not affect its Baa2 senior unsecured ratingsGlobal Credit Research – 15 Mar 2022Frankfurt am Main, March 15, 2022 — Moody’s Investors Service (« Moody’s ») said that Solvay SA’s (Solvay) recently announced proposal to spin-off its high-growth specialty chemicals businesses into an independent company (« SpecialtyCo »), whilst retaining its mono-technology and cash generative businesses (« EssentialCo ») activities, does not affect its Baa2 senior unsecured rating at this time.Solvay’s ratings take into account the strong performance in 2021 and Moody’s expectation that Solvay will generate EBITDA in 2022 of around €2.0 billion, largely unchanged against 2021. This estimate takes into account (i) demand normalization effects in 2022 after a very strong 2021 that was characterized by recovery; (ii) a more challenging operating environment with high feedstock and electricity prices that need to be passed on to preserve profitability; as well as (iii) heightened geopolitical risks following the Ukraine invasion. Moody’s forecast assumes no contributions from Rusvinyl, Solvay’s joint venture in Russia, following Solvay’s decision to suspend operations and dividend payments.Solvay’s ratings continue to take into account a strong business profile with a high degree of geographical, end market and product diversification, as well as a financial profile commensurate with the Baa2 rating including expectations for (i) EBITDA margins of around 20%; (ii) Moody’s-adjusted debt/EBITDA of 2.5x-3.0x; and (iii) RCF/net debt above 20%. The rating of Solvay also reflects the company’s commitment to preserving its current investment grade rating until separation.The proposed spin-off will allow each company to pursue growth and capital investments under distinct capital structures and with different underlying cash generation patterns. EssentialCo activities will be in more mature and highly consolidated end markets and are highly cash generative. Given the large carbon footprint of its soda ash activities, the necessary high investments to facilitate the energy transition and other measures to reduce EssentialCo’s CO2 output will be very different from SpecialtyCo. SpecialtyCo operations have a significantly smaller CO2 footprint and will focus on materials such as composite materials and batteries that benefit from light-weighting trends in the automotive and aerospace industries and the electrification of cars.Absent the target capital structures of each entity, it is difficult to opine today on the emerging future credit risk profiles of SpecialtyCo and EssentialCo. Solvay said that « SpecialtyCo would be committed to a strong investment-grade rating. EssentialCo would maintain a prudent financial policy. » Moody’s expects Solvay to publish more detailed information on both emerging entities prior to the separation, which would allow the rating agency to assess the impact on legacy debt instruments and positioning as well as the credit quality of each entity. Moody’s believes that the combination of Essential Co’s business risk and the commitment to a strong investment grade rating for SpecialtyCo could result in credit quality of the two entities that is sufficiently different to suggest a lower rating for EssentialCo. Solvay also stated a commitment to offer current USD and EUR senior and hybrid bondholders the option to be transferred to SpecialtyCo in due time.Based in Brussels, Solvay SA (Solvay) is one of the leading European chemicals groups. Solvay’s activities are organised around three main operational segments Materials, Chemicals and Solutions. In 2021 Solvay reported consolidated net sales of around €10.1 billion and IFRS EBITDA of around €2.0 billion, equivalent to a margin of 20.2%.This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history. Martin Kohlhase VP – Senior Credit Officer Corporate Finance Group Moody’s Deutschland GmbH An der Welle 5 Frankfurt am Main, 60322 Germany JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Karen Berckmann, CFA Associate Managing Director Corporate Finance Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody’s Deutschland GmbH An der Welle 5 Frankfurt am Main, 60322 Germany JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 © 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). 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