Yahoo Finance

Rating Action: Moody's assigns B3 ratings to Rinchem Company, LLC, outlook stableGlobal Credit Research - 27 Jan 2022New York, January 27, 2022 -- Moody's Investors Service ("Moody's") has assigned a B3 Corporate Family Rating ("CFR"), a B3-PD Probability of Default ("PDR") to Rinchem Company, LLC ("Rinchem") and B3 rating to the company's proposed senior secured first lien credit facility including a $35 million revolving credit facility and a $300 million term loan. Proceeds from the term loan issuance will be used, together with equity investment, to fund the acquisition of Rinchem by Stonepeak. The outlook is stable.The ratings are subject to review of the final credit agreements."Rinchem's B3 CFR reflects its small business scale, concentrated customers base, elevated debt leverage and significant capital spending that will limit its financial flexibility in the next two to three years. However, the strong demand from semiconductor sector will support its long term growth and strengthen its earnings over time. The company can potentially improve its rating should it continue to grow its business scale, diversity and earnings by investing in new capacity to cater for the growing chips production without weakening its credit metrics," said Jiming Zou, Moody's lead analyst on Rinchem.Assignments:..Issuer: Rinchem Company, LLC.... Corporate Family Rating, Assigned B3.... Probability of Default Rating, Assigned B3-PD....Senior Secured Sr Sec First Lien Term Loan B, Assigned B3 (LGD4)....Senior Secured Sr Sec First Lien Revolving Credit Facility, Assigned B3 (LGD4)Outlook Actions:..Issuer: Rinchem Company, LLC....Outlook, Assigned StableRATINGS RATIONALERinchem's B3 CFR is constrained by its small business scale, concentrated customers base and large capital expenditure in the coming years. Its business profile compared weak to other B-rated issuers due to a small revenues base of about $280 million in 2021, about 75% sales exposure to top 10 customers and narrow business focus on specialty chemicals' supply chain solutions. As the company is quickly expanding its operations, warehouse capacity and scope of services, its ability to manage business risks, including relationships with its customers, suppliers, labor force, compliance with health, safety and environmental regulations, on a much larger scale remains to be seen. While the company has a track record serving blue-chip customers with complex logistical requirements, we believe other large logistics companies with established networks and strong financial flexibility could intensify business competition in this niche market segment.The rating also factors in our expectation of Rinchem's limited financial flexibility in the next two to three years given the company's significant capital expenditure, working capital needs and deferred purchase price payments. These cash outlays leave little free cash flow for unexpected business needs. We view Rinchem's significant investment in future warehousing and transportation capacity as largely committed, as it has entered into service contracts with customers which are building new facilities. Sales and earnings from Rinchem's growth projects will gradually materialize, as it takes two to three years for its semiconductor customers to complete new fabs and ramp up chips production from 2024 on.At the same time, Rinchem's rating is supported by its experienced management team, long-term contracts with blue-chip customers, and strong growth in supply chain solutions to semiconductor manufacturers. Its sales growth has outpaced the market in the last several years, thanks to its customized logistics solutions and entrenched relations with its major customer in the semiconductor industry. Management has proven its ability to win customer trust by completing complex logistics services and adding more services over time, which in turn strengthen customer stickiness and profitability.We expect continued strong business growth at Rinchem, as major semiconductor manufacturers including Intel, Samsung and TSMC are investing heavily in fabs in the US due to strong chip demand, supply chain security, federal incentives and geopolitical considerations. The increasing number of process steps in the state-of-the-art chip production also raises the amount of chemicals used and the complexity in supply chain. Rinchem has recently won new multiyear service contracts from major semiconductor manufacturers, which support sales visibility. We also expect the company to maintain sound profit margins thanks to the increasing utilization of its existing logistics networks due to the growing semiconductor production. Furthermore, Rinchem has a track record of raising rates to offset cost inflation, supporting profit margins.We expect Rinchem's debt leverage will remain in the range of 5x to 6x in the next two to three years, similar to the initial leverage at the closing of the transaction. The company will generate meaningful free cash flow, after semiconductor manufacturers ramp up their chip production. However, management will continue to expand its logistics networks for economies of scale and continue to grow into adjacencies such as pharmaceutical and specialty gas distributions. Both internal cash flow and external financing will be used support its growth strategy under its private equity ownership.Rinchem's adequate liquidity profile reflects its available cash on hand at the closing of the transaction, $35 million undrawn revolving credit facility and our expectation that management will carefully manage capital expenditure to safeguard liquidity. The company's cash outlays also include about $27 million in a deferred purchase price payment to be made between 2022 and 2024. The $35 million revolving credit facility is sufficient to cover business contingencies, as Rinchem only manages the supply chain without taking the ownership of inventory. The revolver has a springing financial covenant-- a maximum First Lien Leverage Ratio with a 40% cushion, which will be tested if the outstanding amount exceeds the greater of $14 million and 40% of the revolver's principal.Rinchem's proposed $300 million first lien term loan and $35 million revolving credit facility are rated B3, in line with the CFR, given their predominance in the debt capital structure. The term loan and revolving credit facility share the same collateral and are secured by the first priority lien on substantially all the assets of the borrowers and guarantors, excluding the assets outside of the US.The stable outlook reflects our expectation that Rinchem will maintain its credit quality in line with the rating requirements in the next 12-18 months, as the strong demand for specialty logistics solutions from semiconductor manufacturers mitigate the risk of its large capital spending.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSMoody's could upgrade the rating, if the company successfully implements its investment strategy, grows its business scale, customers base and business diversity. A rating upgrade would also require debt leverage consistently below 5 times, positive free cash flow generation, and a track record of managing business risks at a much larger scale.Moody's could downgrade the rating, if the company fails to grow its earnings or increases its financial leverage to accelerate growth. Debt leverage above 6 times, negative free cash flow, or a deterioration in liquidity would also result in a downgrade.ESG CONSIDERATIONRinchem's ratings incorporate environmental, social and governance considerations. The company is exposed to health, safety and environmental risks when handing hazardous chemicals in its warehouses and during transportation. Governance risks are above-average due to the risks associated with private equity ownership, limited financial disclosure requirements as a private company and aggressive financial policies compared to most public companies.Rinchem is a specialized supply chain solutions provider to semiconductor manufacturing, pharmaceuticals and biotechnology. It warehouses and transports high-value, high purity chemicals and specialty gases for the complex semiconductor manufacturing process. The company is owned by Stonepeak and management team.The principal methodology used in these ratings was Chemical Industry published in March 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1152388. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.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 at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.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 ratings tab on the issuer/entity page for the respective issuer on www.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. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Jiming Zou, CFA Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Glenn B. Eckert Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements. ​