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Rating Action: Moody's upgrades Air Liquide's rating to A2Global Credit Research - 06 Sep 2022Frankfurt am Main, September 06, 2022 -- Moody's Investors Service ("Moody's") upgraded Air Liquide S.A.'s (Air Liquide or the company) long term issuer rating to A2 from A3. Concurrently, Moody's upgraded the ratings of all senior unsecured notes and senior unsecured medium term note programs issued by Air Liquide S.A. and its subsidiary Air Liquide Finance to A2 and (P)A2, from A3 and (P)A3 respectively. Moody's also upgraded Air Liquide's short-term issuer rating and commercial paper rating to Prime-1 (P-1) from Prime 2 (P-2). The outlook on the ratings changed to stable from positive.A list of affected ratings can be found at the end of this release.RATINGS RATIONALEThe upgrade of Air Liquide's ratings reflects Moody's expectation that the company will continue to improve its credit metrics to a level commensurate with an A2 rating and sustain these metrics through a range of economic scenarios. The A2 rating incorporates the stability and resilience of Air Liquide's earnings and cashflow generation, as well as the company's continued balanced financial policy. The upgrade of the short-term issuer rating and CP rating to Prime-1 reflects the company's strong short term liquidity and financial policy of always backstopping CP issuance with the syndicated EUR2.5 billion syndicated RCF and additional bilateral facilities.Air Liquide's A2 rating takes into account the group's position as the second largest company in the industrial gas industry, a sub sector of the chemical industry characterized by relatively stable volumes, profit and cash generation. Since its acquisition of Airgas, Inc. in 2016 the company has slowly but consistently reduced its leverage through debt reduction and EBITDA growth and improved its profitability. As of June 2022, Air Liquide's Moody's adjusted gross leverage stood at 2.6x, and Moody's expects that a combination of earnings contributions from new project ramps, continued focus on passing through raw material price increases in its industrial merchant business and cost containment, as well as some gross debt reduction, will support deleveraging to below 2.5x debt / EBITDA by year end 2022.The upgrade to A2 also reflects Moody's view that the company's diversification across different end-markets and geographies, the high proportion of recurring revenue from take or pay contracts and rental income, and its ability to pass through price increases to customers will support relatively stable performance in a broad based macroeconomic downturn. As of June 2022 Air Liquide's order backlog was around EUR3 billion, which once fully ramped up will contribute around EUR1.1 billion of annual sales. Moody's expects that Air Liquide's capital expenditures will remain elevated over the the next 12-18 months as the company executes its order backlog, resulting in Moody's adjusted FCF being moderately negative to breakeven levels in 2022 and 2023.LIQUIDITYAir Liquide's liquidity profile is strong. As of 30 June 2022, the company had around EUR1.5 billion of cash and cash equivalents on its balance sheet. Furthermore, the company has access to an undrawn EUR2.5 billion syndicated revolving credit facility and EUR1.1 billion of other credit lines. In combination with expected adjusted funds from operations (FFO) generation of around EUR5 billion, these sources should be more than sufficient to cover capital expenditures estimated to be around EUR3.3 billion, debt maturities, dividend payments and working capital swings. As part of the company's financial policy, any issuance under the company's existing commercial paper programs needs to be backstopped by availabilities under the company's existing revolving credit facility.RATING OUTLOOKThe stable outlook reflects the expectation that Air Liquide's credit metrics will improve to and remain in line with expectations for its A2 rating. The stable outlook also reflects the expectation that the company will take appropriate measures to protect its credit quality and rating in case of a broader based macroeconomic downturn or a gas rationing in Europe that meaningfully impacts its earnings and cashflow generation.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSMoody's would consider downgrading Air Liquide's rating with leverage sustained above 2.5x on a sustainable basis and its RCF / net debt would be below 25% through economic cycles. Any indications of a less conservative financial policy would also be negative for the rating.Moody's could consider upgrading the rating with expectations for leverage sustained below 2.0x, retained cash flow-to-debt sustained above 35%, and a public commitment to a higher rating. LIST OF AFFECTED RATINGS ..Issuer: Air Liquide Finance Upgrades: ....BACKED Commercial Paper, Upgraded to P-1 from P-2....BACKED Senior Unsecured Medium-Term Note Program, Upgraded to (P)A2 from (P)A3....BACKED Senior Unsecured Regular Bond/Debenture, Upgraded to A2 from A3Outlook Actions:....Outlook, Changed To Stable From Positive..Issuer: Air Liquide S.A.Upgrades:.... LT Issuer Rating, Upgraded to A2 from A3.... ST Issuer Rating, Upgraded to P-1 from P-2....Commercial Paper, Upgraded to P-1 from P-2....Senior Unsecured Medium-Term Note Program, Upgraded to (P)A2 from (P)A3....Senior Unsecured Regular Bond/Debenture, Upgraded to A2 from A3Outlook Actions:....Outlook, Changed To Stable From Positive..Issuer: Air Liquide U.S. LLCUpgrades:....BACKED Commercial Paper, Upgraded to P-1 from P-2Outlook Actions:....Outlook, Changed To Stable From PositivePRINCIPAL METHODOLOGYThe principal methodology used in these ratings 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.COMPANY PROFILEHeadquartered in Paris, France, Air Liquide is a world leader in gas, technologies and services for industries and healthcare, generating EUR23.3 billion revenue in 2021. The company employs about 66,400 people across 75 countries.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. 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