Moody's Investors Service assigned a B1 rating to Rockwood Specialties Group's $570 million senior secured guaranteed credit facility because of the company's high leverage. The credit was launched into syndication this month. Diane Vargas, v.p. and senior analyst at Moody's, said high leverage is the main driver of the rating. "Even without considering the senior discount and (payment in kind) notes, they have very high leverage," she said. The Princeton, N.J.-based company is a global producer of specialty chemicals, including additives, specialty compounds and electronics.
Another major factor determining the rating is the highly cyclical nature of the electronics business, which is currently experiencing a downturn. "The electronics business comprises approximately one-quarter of the company's sales and EBITDA for the last 12 months," Vargas said. "Electronic chemicals account for 14 percent of sales and EBITDA, and that is down significantly in the second quarter."
A plus for the company is its diverse global specialty chemical niche. "Specialty chemical producers, such as the company, are able to achieve higher profit margins than commodity chemical producers because of the value-added nature of their product's contribution to the end product, which typically represents a small portion of the total end product cost," Vargas said. "The business has high barriers to entry, including switching costs, diversity of end-markets, customers, and raw materials, leading market positions, and recognized brand names." The senior secured credit facility will consist of a $125 million revolver, a $140 million term loan "A," both maturing in 2008; and a $305 million term loan "B" maturing in 2009.