Fitch Ratings has today upgraded Germany-based HeidelbergCement AG’s (HC) Long-term Issuer Default (IDR) and senior unsecured ratings to ’BB-’ from ’B’ and ’CCC’, respectively. They have been removed from Rating Watch Positive where they were placed on 12 October 2009. The Outlook on the Long-term IDR is Positive. HC’s Short-term IDR has been affirmed at ’B’.
Fitch has also assigned final senior unsecured ratings of ’BB-’ to HC’s EUR1bn 7.5% notes due in 2014, EUR1bn 8% notes due in 2017 and EUR500m 8.5% notes due in 2019. This follows the review of final documents conforming to information already received.
The upgrade reflects material reduction in the refinancing risk of HC’s December 2011 secured syndicated facility, following the successful issuance of the total EUR2.5bn notes and EUR2.25bn new equity in September 2009. The drawn amount under the term loans of the syndicated secured facility has been reduced to just over EUR2.3bn from about EUR6.5bn. The agency also believes that the successful bond issuance, which is considerably above the amount originally expected, would aid the company in its future refinancing efforts of the remaining portion of the secured facility, allowing for a smooth reduction of the refinancing risk.
The Positive Outlook reflects Fitch’s expectations that HC would progressively improve its credit metrics, including net leverage, over the next 24 months. This would be driven by moderate free cash flow generation, as a result of continued cost reduction measures and containment of capex.
Fitch’s latest forecasts for HC include a mid-teen percentage point decline in revenue in 2009 and a flat performance in 2010, as well as deteriorating EBITDA margins in 2009 before a slight recovery in 2010. Under this scenario, expected lower cash flow from operations is likely to result in only slightly positive free cash flow compared to a five-year average of 4% free cash flow/revenue. Net leverage is forecast to be below 3.8x by FYE11. In its forecast, the agency has not factored in any inflows from potential disposals.
The obligations under the EUR2.5bn notes constitute unsubordinated and unsecured obligations of HC and rank equally among themselves and with all other unsecured and unsubordinated obligations of HC.
The notes have an unconditional and irrevocable guarantee by Hanson Limited, which will expire upon the date of payment in full of all obligations of Hanson Limited under its USD750m notes due 2010 and USD750m due in 2016, and of Hanson Australia Funding Limited under its USD750m notes due 2013.
The notes have a change of control clause, a limitation on additional indebtedness subject to the incurrence of a certain gross interest coverage ratio (2:1 as defined in the notes prospectus) and a negative pledge in relation to capital market indebtedness.