OREANDA-NEWS. S&P Global Ratings today affirmed the 'B' corporate credit rating on Avantor Performance Materials Holdings S. A. The outlook is stable.

At the same time, we affirmed our 'B' issue-level and '3' recovery rating on the company's existing first-lien term loan and revolving credit facility following the issuance of the company's proposed $400 million incremental term loan and increase of the commitment under the company's revolving credit facility to $75 million based on preliminary terms and conditions. We are also assigning our 'B' issue-level rating and '3' recovery rating to the proposed $170 million delayed draw first-lien term loan. The '3' recovery rating indicates our expectation of meaningful (lower end of the 50% to 70% range) recovery in the event of a payment default.

We are also affirming our 'CCC+' issue-level rating and '6' recovery rating on the company's existing second-lien term loan. The '6' recovery rating indicates our expectation of negligible (0% to 10% range) recovery in the event of a payment default. The proposed debt is to be issued by Avantor Performance Materials Holdings Inc. and guaranteed by Avantor Performance Materials Holdings S. A.

"The stable outlook reflects our view that, following the proposed transactions, the combined company's credit measures should strengthen over the next year," said S&P Global Ratings credit analyst Brian Garcia. "This is due to expected EBITDA growth from successfully implemented cost-saving and price-improvement initiatives, as well as a recovery from operational setbacks," he added.

We could lower the ratings within the next 12 months if sales to a major customer dropped unexpectedly, or if a shift in technology resulted in significantly lower sales of a product (or group of products), without improvements in other areas to offset them. We could also lower the ratings if the company faces integration related issues, resulting in unexpected costs, depressing EBITDA for a prolonged period of time. In such a scenario, we would expect pro forma debt-to-EBITDA ratio to remain above 7x on a sustained basis. We could also consider a downgrade if liquidity diminished and covenant compliance became a risk, or if the company increased debt leverage further to fund an additional return to shareholders or growth investments.

We could raise the ratings within the next 12 months if the company were to reduce debt significantly, resulting in pro forma debt to EBITDA improving to below 5x on a sustainable basis. To consider an outlook revision, we would also expect the company's business risk profile to remain what we consider fair and for the company to maintain liquidity we assess as adequate. We would also expect the company to maintain supportive financial policies, including a prudent approach to funding growth initiatives and shareholder rewards while maintaining pro forma debt to EBITDA below 5x.

Avantor will be merging with NuSil, a leading manufacturer of specialty silicone materials. Following the transactions, we expect Avantor to benefit from potential cost synergies, although we believe there is some integration risk. We also expect EBITDA margins from Avantor's legacy businesses to improve over the next year as a result of ongoing cost-saving and price-improvement initiatives that the company has implemented. We continue to assess the company's business risk profile as fair and financial risk profile as high leveraged, pro forma for the transactions.