Rating Action: Moody’s assigns a Caa1 rating to Vantage’s term loan add-on and revolver extensionGlobal Credit Research – 25 Mar 2022New York, March 25, 2022 — Moody’s Investors Service (“Moody’s”) has assigned a Caa1 rating to Vantage Specialty Chemicals, Inc.’s (Vantage) $54 million non-fungible first lien term loan add-on due 2024. Moody’s also assigned a Caa1 rating to the $75 million senior secured revolving credit facility that was extended from October 2022 to January 2024. The incremental term loan, borrowing on the revolving credit facility, an equity contribution from the sponsors, rollover equity, as well as a seller’s note, were used to acquire JEEN International and BotanicalsPlus, Inc. (collectively JEEN) as well as pay fees and expenses. Vantage’s Caa1 Corporate Family Rating (CFR), Caa1-PD Probability of Default Rating (PDR) and Caa3 senior secured second lien term loan rating are unchanged. The outlook is stable.”The acquisition of JEEN will stretch the balance sheet, but combined with Moody’s expectation for further improvement in revenues and earnings, as well as the strategic rationale for the deal, Vantage’s credit metrics are expected to improve and support the existing rating,” said Domenick R. Fumai, Moody’s Vice President and lead analyst for Vantage Specialty Chemicals, Inc.Assignments:..Issuer: Vantage Specialty Chemicals, Inc…..Gtd Senior Secured First Lien Term Loan, Assigned Caa1 (LGD3)….Gtd Senior Secured Revolving Credit Facility, Assigned Caa1 (LGD3)RATINGS RATIONALEThe existing ratings are not affected despite the increase in gross debt because Moody’s believes the acquisition of JEEN will add significant customization and formulation capabilities and product offerings to Vantage’s existing platform that should be accretive to revenue and EBITDA. JEEN will enhance Vantage’s personal care business, which has performed well throughout the pandemic, and is expected to improve EBITDA margins. Vantage has also identified potential cost synergies for headcount, redundancies in non-labor costs and procurement. JEEN has experienced double-digit growth over the last several years, particularly in the independent brand segment, while JEEN and BotanicalsPlus should continue to benefit from favorable consumer trends for natural and clean products.Vantage’s rating is constrained by elevated leverage resulting from an acquisitive financial strategy and lack of free cash flow generation, which has limited its ability to reduce financial leverage. Although Vantage’s Debt/EBITDA, including Moody’s standard adjustments, has improved from 9.2x as of March 31, 2021, and pro forma for the transaction, will be approximately 8.4x, it remains elevated and is more reflective of the “Caa” rating category. Gross debt levels are also high relative to the size of the company’s asset base. Moreover, despite several acquisitions that have increased geographic diversity, Vantage’s revenue and EBITDA are heavily concentrated in the US. Vantage has improved operational flexibility through several transactions such as Leuna-Tenside and Textron Plimon; however, a high degree of operational risk still exists as the company is extremely dependent on two manufacturing sites located in Gurnee, Illinois and Chicago.Vantage’s rating is supported by the company’s established market positions in oleochemicals and their expanded specialty derivatives portfolio, which have a wide range of applications, including personal care, food, consumer products and industrial specialties. Moody’s expects volume growth, further pricing gains and favorable mix to drive revenue and EBITDA growth in 2022 as some of the company’s industrial end markets such as oil and gas, lubricants and metalworking that have been impacted by the pandemic continue to show improvement. Vantage’s oleochemical business should also benefit from higher oil prices as their products are derived from natural fats like tallow and the majority of the products they compete with are produced from petrochemicals.The stable outlook assumes that Vantage’s financial and operational performance will improve in 2022 as volumes, revenues and EBITDA grow because of continued growth in their end markets, as well as pricing and mix initiatives.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSMoody’s would likely consider a downgrade if there is a further significant deterioration in EBITDA compared to Moody’s base case scenario, free cash flow becomes meaningfully negative on a sustained basis, if liquidity falls below $50 million or if the company makes a debt-financed acquisition or distribution to its sponsor. Ratings could also be downgraded if their 2024 maturities are not refinanced before they become current next year.Moody’s would consider an upgrade if financial leverage, including Moody’s standard adjustments, is sustained below 7.5x, balance sheet debt is materially reduced, the company experiences substantial revenue growth and free cash flow generation, and the private equity sponsors demonstrate a commitment to more conservative financial policies.ESG CONSIDERATIONSMoody’s also evaluates environmental, social and governance factors in Vantage’s rating. Governance risks are elevated due to majority private equity ownership by H.I.G. Capital, which includes a board of directors with majority representation by members affiliated with the sponsor, and reduced financial disclosure requirements as a private company. Vantage also has high financial leverage compared to most public companies and an acquisitive strategy. Environmental and social risks are below average for a chemical company. Vantage does not currently have any significant environmental litigation or claims. Social risks are low as a number of raw materials used are derived from natural products such as almond, jojoba, palm oil and animal fats, which are natural and renewable. Vantage is committed to efficient use of water in irrigation, and farming practices that avoid land erosion.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.Vantage Specialty Chemicals, Inc. based in Chicago, Illinois, is a privately-held company that focuses on natural ingredient products including those derived from animal fat and vegetable oil. The company operates four business segments, Personal Care, Food, Performance Materials and Oleochemicals, and produces more than 2,000 products for over 3,500 customers in 50 countries. In October 2017, H.I.G Capital acquired the majority equity stake in Vantage from its previous owner, The Jordan Company. Vantage reported revenue of $830 million for the last twelve months ended September 30, 2021.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. 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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. Domenick R Fumai Vice President – Senior Analyst Corporate Finance Group Moody’s Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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Vantage Specialty Chemicals, Inc. — Moody’s assigns a Caa1 rating to Vantage’s term loan add-on and revolver extension
