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Moody's affirms Novelis's B2 CFR, Downgrades Unsec notes, Assigns Caa1 to new notes
Approximately $1.3 billion of notes affected
New York, August 05, 2009 -- Moody's Investors Service affirmed Novelis Inc's (Novelis) B2 corporate family rating, B2 probability of default rating, and the Ba3 rating on the senior secured revolver and term loan, as well as the Ba3 rating on Novelis Corporation's senior secured term loan. At the same time, Moody's downgraded the rating on the 7.25% senior notes to Caa1 from B3 and assigned a Caa1 rating to Novelis Inc's new note issue maturing February 15, 2015. The rating outlook is negative.
The downgrade to Caa1 from B3 for the senior unsecured notes solely reflects the application of Moody's loss given default methodology and the impact of capital structure changes effected since March 2009 that have increased the proportion of secured debt relative to unsecured debt. The secured term loan increased by $220 million, proceeds of which were used to repurchase some of the outstanding 7.25% senior notes. As a consequence, secured debt has increased to roughly 50% of the capital structure and weakened the position of the unsecured debt in the overall liability waterfall. The Caa1 rating will also apply to the new senior unsecured notes.
Novelis' B2 corporate family rating captures the ongoing performance challenges given the weak demand fundamentals for aluminum products, especially sales to the construction and automotive end markets. The rating also incorporates the company's relatively high leverage and weak debt protection metrics, the sensitivity of its earnings to volume levels given the level of fixed costs in the business, and the volatility in performance that arises from the differential between beverage can prices and primary aluminum prices (which impacts the company's expected internal hedge position).
However, the rating acknowledges the company's sizeable global footprint in the aluminum rolled products markets, which includes its dominant market position in can sheet, which provides a degree of stability, as well as good positions in industrial, foil and packaging and transportation. Also captured in the rating is the expectation that the company's performance will improve as the can price ceiling contracts expire. A further consideration in the rating is the support recently shown by its parent, Hindalco, in the providing a $100 million unsecured credit facility via an affiliate of the Aditya Birla group to support Novelis's liquidity requirements.
Downgrades:
..Issuer: Novelis Inc.
....Senior Unsecured Regular Bond/Debenture, Downgraded to Caa1, LGD5, 78% from B3, LGD5, 76%
Assignments:
..Issuer: Novelis Inc.
....Senior Unsecured Regular Bond/Debenture, Assigned Caa1, LGD5 78%
Moody's last rating action on Novelis was January 30, 2009 when the company's ratings were downgraded (corporate family rating to B2 from B1)
The principal methodology used in rating Novelis was Moody's Global Steel Industry rating methodology, which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory September 2005, document #94364). Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory.
Headquartered in Atlanta, Georgia, Novelis is the world's largest producer of aluminum rolled products. For the fiscal year ended March 31, 2009, the company had total shipments of approximately 2,943 kilotonnes and generated $10.2 billion in revenues.
Moody's affirms Novelis's B2 CFR, Downgrades Unsec notes, Assigns Caa1 to new notes
Approximately $1.3 billion of notes affected
New York, August 05, 2009 -- Moody's Investors Service affirmed Novelis Inc's (Novelis) B2 corporate family rating, B2 probability of default rating, and the Ba3 rating on the senior secured revolver and term loan, as well as the Ba3 rating on Novelis Corporation's senior secured term loan. At the same time, Moody's downgraded the rating on the 7.25% senior notes to Caa1 from B3 and assigned a Caa1 rating to Novelis Inc's new note issue maturing February 15, 2015. The rating outlook is negative.
The downgrade to Caa1 from B3 for the senior unsecured notes solely reflects the application of Moody's loss given default methodology and the impact of capital structure changes effected since March 2009 that have increased the proportion of secured debt relative to unsecured debt. The secured term loan increased by $220 million, proceeds of which were used to repurchase some of the outstanding 7.25% senior notes. As a consequence, secured debt has increased to roughly 50% of the capital structure and weakened the position of the unsecured debt in the overall liability waterfall. The Caa1 rating will also apply to the new senior unsecured notes.
Novelis' B2 corporate family rating captures the ongoing performance challenges given the weak demand fundamentals for aluminum products, especially sales to the construction and automotive end markets. The rating also incorporates the company's relatively high leverage and weak debt protection metrics, the sensitivity of its earnings to volume levels given the level of fixed costs in the business, and the volatility in performance that arises from the differential between beverage can prices and primary aluminum prices (which impacts the company's expected internal hedge position).
However, the rating acknowledges the company's sizeable global footprint in the aluminum rolled products markets, which includes its dominant market position in can sheet, which provides a degree of stability, as well as good positions in industrial, foil and packaging and transportation. Also captured in the rating is the expectation that the company's performance will improve as the can price ceiling contracts expire. A further consideration in the rating is the support recently shown by its parent, Hindalco, in the providing a $100 million unsecured credit facility via an affiliate of the Aditya Birla group to support Novelis's liquidity requirements.
Downgrades:
..Issuer: Novelis Inc.
....Senior Unsecured Regular Bond/Debenture, Downgraded to Caa1, LGD5, 78% from B3, LGD5, 76%
Assignments:
..Issuer: Novelis Inc.
....Senior Unsecured Regular Bond/Debenture, Assigned Caa1, LGD5 78%
Moody's last rating action on Novelis was January 30, 2009 when the company's ratings were downgraded (corporate family rating to B2 from B1)
The principal methodology used in rating Novelis was Moody's Global Steel Industry rating methodology, which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory September 2005, document #94364). Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Credit Policy & Methodologies directory.
Headquartered in Atlanta, Georgia, Novelis is the world's largest producer of aluminum rolled products. For the fiscal year ended March 31, 2009, the company had total shipments of approximately 2,943 kilotonnes and generated $10.2 billion in revenues.
