Rating Action: Moody's assigns B3 rating to Polar US Borrower, LLC's revolving credit facilityGlobal Credit Research - 23 Aug 2022New York, August 23, 2022 -- Moody's Investors Service ("Moody's") assigned a B3 rating to Polar US Borrower, LLC's (dba Si Group, Inc.) $272.5 million senior secured first lien revolving credit facility. The revolving credit facility is upsized from $250 million and the maturity has been extended from 2023 to 2027. The B3 Corporate Family Rating (CFR), B3-PD Probability of Default Rating (PDR) and B3 rating on the first lien senior secured term loan and Caa2 rating on the senior unsecured notes remains unchanged. The outlook is stable."The extension of the maturity profile removes near term refinancing risk as the revolving credit facility was set to become current in a few months," said Domenick R. Fumai, Moody's Vice President and lead analyst for Polar US Borrower, LLC.Assignments:..Issuer: Polar US Borrower, LLC....GTD Senior Secured First Lien Revolving Credit Facility, Assigned B3 (LGD3)RATINGS RATIONALESI Group's B3 rating is constrained by continued elevated leverage with Moody's adjusted Debt/EBITDA of 6.8x as of March 31, 2022. Nonetheless, SI Group's financial performance has held up relatively well despite the current challenging inflationary environment. Moody's expects that sales growth will moderate as global macroeconomic conditions slow, but should continue to demonstrate year-over-year increases. Although EBITDA has steadily improved, raw material price inflation and higher logistics costs have pressured margins, nevertheless expectations are for commodity prices to decline over the second half of 2022. Moody's now projects Debt/EBITDA, including standard adjustments, will range between 6.5x-7.0x in FY 2022 in contrast to mid-7x. However, free cash flow is expected to remain negative because of higher working capital and increased capex spending to expand additives capacity at several plants.The rating is also tempered by SI Group's exposure to several cyclical end markets including automotive and tire, fuel and lubricants and oilfield solutions, which increases revenue and EBITDA volatility as was demonstrated by the company's operating performance in FY 2020. Furthermore, several of the company's key raw materials, including phenol and isobutylene, are unpredictable and subject to significant price swings, which despite protection from long-term contracts, could pressure profitability.The B3 rating is supported by SI Group's broad product portfolio. SI Group's business profile is characterized as having good scale compared to many similarly-rated issuers, well-balanced geographic diversity and solid market positions serving a varied number of end markets. SI Group benefits from the importance of its performance additives products to customers, which makes switching suppliers challenging, and is evidenced by long-term relationships with many of them exceeding 20 years. The credit profile also considers the company's improved cost structure following the merger of Addivant and Schenectady International Group in 2018 as it has successfully exceeded synergy targets, rationalized its portfolio by divesting low margin, non-core businesses such as industrial resins and made investments in growth initiatives such as Project Lonestar. The rating is further underpinned by SI Group's liquidity of approximately $239 million as of March 31, 2022.The stable outlook reflects Moody's expectations that demand in SI Group's key end markets such as rubber and adhesives, fuel and lubricants, and packaging exhibit less volatility in the event that economic conditions weaken in the fourth quarter of 2022 or in 2023. The outlook also factors that the company will maintain sufficient liquidity of at least $200 million over the next 12-18 months.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGMoody's would likely consider a downgrade if leverage is consistently maintained above 7.5x and free cash flow is negative for a sustained period, if there is a significant deterioration in liquidity or a large debt-financed acquisition or dividend to the sponsor.Moody's would consider an upgrade if financial leverage, including Moody's standard adjustments, is below 6.0x for an extended period, revenue and free cash flow growth remain positive and the private equity sponsor demonstrates a commitment to more conservative financial policies.Debt capital is currently comprised of the $272.5 million first lien senior secured revolving credit facility due 2027, and $1.475 billion first lien senior secured term loan due 2025, of which approximately $1.34 billion is outstanding as of March 31, 2022. The B3 rating on the first lien term loan and revolving credit facility, the same as the CFR, reflects their still sizable amount in the capital structure with only moderate loss absorption following the issuance of the senior unsecured notes. The first lien term loan does not contain financial maintenance covenants while the revolving credit facility is subject to a springing total net leverage ratio test if usage exceeds 35% at the end of the quarter. Moody's does not expect the company to test the covenant over the next 12 months and believes that if it was triggered, SI Group would be in compliance. The revolving credit facility also has a springing maturity of 91 days before the term loan maturity in October 2025 and notes maturity in May 2026. The Caa2 rating assigned to the senior unsecured notes reflects their subordinated position and relatively low recovery prospects given the amount of secured debt in the capital structure.The principal methodology used in this rating was Chemicals published in June 2022 and available at https://ratings.moodys.com/api/rmc-documents/389870. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.Polar US Borrower, LLC is the pass-through entity of ultimate parent, SK Mohawk Holdings, SARL, an affiliate of private investment firm, SK Capital Partners. SI Group manufactures performance additives for use in polymer, rubber, lubricants, fuels, adhesives applications, surfactants in addition to some specialty chemicals. The company serves a broad array of industries including pharmaceuticals, plastics, automotive, and oil and gas. 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