Dyckerhoff AG -- Moody's downgrades Dyckerhoff's long-term issuer rating to Baa3; stable outlook
Today's rating action was prompted by Buzzi - Unicem SpA announcement on 23 November 2012 that it had entered into an agreement to purchase 20,499 ordinary shares and 1,347,951 preferred shares of Dyckerhoff AG at a total cost of approximately EUR71.7 million. Pursuant to this purchase, which is expected to be executed on 30 November 2011, Buzzi Unicem will hold 96.6% of the share capital of Dyckerhoff (98.1% of ordinary stock and 95.2% of preferred stock) and will be entitled to exercise a squeeze--out of the remaining minority shareholders.
"Specifically, the downgrade reflects that, with Buzzi Unicem having the option to exercise a squeeze-out, the risk of a shift in dividend policy or the implementation of other measures to upstream cash out of Dyckerhoff has increased," says Stanislas Duquesnoy, a Moody's Vice President - Senior Credit Officer and lead analyst for Dyckerhoff.
"However, despite moving the rating of Dyckerhoff closer to the intrinsic credit quality of its parent Buzzi Unicem, we recognise that there remains a wide differential in the two entities' credit quality," continues Mr. Duquesnoy."We consider that creditors of Dyckerhoff are better positioned than those of Buzzi Unicem, both in a going concern and liquidation scenario."
Moody's considers Dyckerhoff's liquidity profile to be good, while Buzzi Unicem's liquidity is somewhat constrained by financial covenants in its loan agreements. As at 30 September 2012, Dyckerhoff had EUR413 million of cash and short-term deposits on the balance sheet and full availability under its EUR190 million revolving credit facility. Coupled with the company's operating cash flow generation (pre-working capital), Moody's would expect these to be sufficient to cover all the company's liquidity requirements for the next four quarters. These requirements mainly consist of working cash, modest working capital requirements and debt repayments, as well as capital expenditure (capex) and dividends.
As at 30 September 2012, Buzzi Unicem had EUR972.3 million of cash on the balance sheet and substantial availability under revolving credit facilities not maturing within the next 12 months. Coupled with its operating cash flow generation (pre-working capital), Moody's would expect these to comfortably cover all of the parent's cash needs over the next 12 months. On a more negative note, Buzzi has relatively tight financial covenants under its US private placements.
The stable outlook assigned to the rating reflects Dyckerhoff's stable operating performance year-to-date September 2012 and modest improvement in the company's credit metrics since December 2011. This improvement was illustrated by the increase in the company's retained cash flow (RCF)/net debt to 35.2% in the 12 months to September 2012 from 32.2% at fiscal year-end 2011. Despite the cash outflow resulting from the acquisition of the Dyckerhoff shares, Moody's expects the credit profile of Buzzi Unicem to remain broadly stable year-on-year in 2012, supported by the parent's strong performance in the US and in Mexico, as well as Dyckerhoff's contribution. The outlook also reflects the fact that there has so far been no shift in Dyckerhoff's dividend policy and that, historically, the company's dividend payout ratios have been broadly stable.
WHAT COULD CHANGE THE RATING UP/DOWN
Given that Dyckerhoff's business profile lacks diversification and the still challenging market environment for building materials companies in general, Moody's considers that there is limited scope for upward rating pressure in the intermediate term. However, a continued improvement in the capital structure of Dyckerhoff as well as that of Buzzi Unicem could lead to positive rating pressure over time.
Negative rating pressure could arise if (1) Dyckerhoff's standalone credit profile deteriorates, with RCF/net debt dropping to below 20% on a sustained basis; and/or (2) the capital structure and profitability of Dyckerhoff's parent, Buzzi Unicem, weakens significantly. Negative rating pressure would also arise if Dyckerhoff's dividend payout ratio increases materially from historical and current levels, signalling a dividend policy shift. In addition, a squeeze-out of Dyckerhoff's minority shareholders, accompanied by more unorthodox measures to upstream cash from the company to Buzzi Unicem, could lead to negative pressure on the current rating.
The principal methodology used in rating Dyckerhoff AG was the Global Building Materials Industry Methodology published in July 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
Headquartered in Wiesbaden, Germany, Dyckerhoff is a medium-sized producer of cement and ready-mixed concrete. The group is the second-largest cement producer in Germany and has operations in Luxemburg, the Netherlands, Poland, Ukraine, Czech Republic/Slovakia and Russia. Together with its parent company, the Italian cement producer Buzzi Unicem, Dyckerhoff holds a 48.5% share in the North American subsidiary of Buzzi Unicem, RC Lonestar, which is proportionally consolidated. At 31 December 2011, Buzzi Unicem held 93% of Dyckerhoff's share capital and 98% of its voting rights. LTM September 2012, Dyckerhoff generated sales of EUR 1.6 billion.
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Stanislas Duquesnoy VP - Senior Credit Officer Corporate Finance Group Moody'sDeutschland GmbH An der Welle 5 Frankfurt am Main 60322 Germany JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Matthias Hellstern Managing Director Corporate Finance Group JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Releasing Office: Moody's Deutschland GmbH An der Welle 5 Frankfurt am Main 60322 Germany JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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