Standard & Poor’s Ratings Services said today that it lowered its long-term corporate credit rating on Greek producer (Titan) to ’BB-’ from ’BB’. The short-term rating is unchanged at ’B’.
At the same time, we removed the ratings from CreditWatch, where we had originally placed them with negative implications on December 7, 2010. The outlook is negative.
The rating actions follow its downgrade of the Hellenic Republic (Greece; B/Watch Neg/C) on May 9, 2011. In accordance with S&P’s criteria for non-sovereign ratings that exceed the ratings on European Monetary Union sovereigns, S&P cap the ratings on Titan at two notches above those on the sovereign, owing to what it deems to be Titan’s moderate exposure to Greece.
S&P’s view of Titan’s moderate exposure to Greece is based on its assessment of Titan’s:
- Concentration of 20%-39% in the jurisdiction: Greece contributes about one-third of group revenues, although a portion of this is exported.
S&P view cement producers as being extremely sensitive to their domestic macroeconomic environment. However, in Titan’s case, this sensitivity is partially mitigated by the company’s ability to export a meaningful portion of its capacity.
- Moderate sensitivity to Greece: Titan’s home market remains significant in the group’s geographic spread and accounted for about 32% of group sales and 26% of EBITDA in 2010, including exports. In this market, S&P believe that consumer confidence, the availability of credit, interest rates, GDP projections, and tax levels, among other things, remain important factors determining Titan’s future performance. These factors are likely to be severely affected, in its view, if there is a further reduction in the probability of nongovernmental sovereign bondholders being paid both in full and on time.
According to S&P, Titan continues to face some risks from a potential acceleration of the economic downturn in Greece. This, in combination with further pressures in its other markets-many of which continue to experience weakness or political unrest-could put further pressure on the ratings.
Downward rating pressure would recede if, despite the macroeconomic challenges, Titan could maintain sufficient operating margins to generate positive free operating cash flow and discretionary cash flow over the next 12 months. This could be the case if, for example, EBITDA margins do not fall to less than the high teens.
Another important factor in reducing downward pressure would be the company’s ability to maintain an adequate liquidity profile at all times. At this stage, we believe that Titan’s credit metrics could withstand a degree of further deterioration of Greece’s creditworthiness at the ’BB-’ long-term and ’B’ short-term rating levels.