Denison Mines announces $250 million convertible notes offering
Investing.com -- S&P Global Ratings has revised its outlook for Continental AG (OTC:CTTAY) to stable from developing, following the approval of the company’s planned spin-off of its auto division. The decision was announced at the annual shareholders meeting on April 25, 2025, and the completion expected by September.
The transaction is anticipated to result in a moderate increase in leverage. However, the company’s shift towards the more profitable and resilient tires activity is expected to lead to stronger cash conversion. Post spin-off, Continental’s adjusted funds from operations (FFO) to debt is projected to be in the 35%-40% range from 2025-2027, a decrease from 51.0% in 2024. Meanwhile, its adjusted free operating cash flow (FOCF) to sales and FOCF to debt ratios are expected to improve to 17%-18% and 5%-6%, respectively, compared with 10%-11% and 2%-3% historically.
The stable outlook reflects S&P’s expectation that Continental will maintain adjusted FFO to debt above 30% and strong FOCF after the planned separation of its auto division. This is expected to be supported by its tires operations and a prudent financial policy regarding shareholder distributions.
The separation of the auto division will result in Continental bearing all of the existing group’s financial debt, leaving the independent auto business with a cash balance of about €1.5 billion. The transfer of significant pension and lease liabilities will partly offset the overall leverage impact. As a result, Continental’s adjusted debt is projected to decrease to about €6.0 billion at separation date, from €6.5 billion at Dec. 31, 2024.
Continental is expected to maintain a balanced financial policy after the spin-off. Despite the increase in its payout ratio target to 40%-60% from 20%-40%, the company’s improved profitability and cash conversion capacity are expected to balance this change. The company is projected to generate annual FOCF of about €1.1 billion after the spin-off, which would more than cover a potential increase in annual common dividend payments to €600 million-€700 million from €500 million in 2025.
The company has also announced its decision to make ContiTech an independent company and focus primarily on its €14 billion revenue tires activities. This move is expected to accelerate deleveraging, although it would reduce the group’s operating diversity.
S&P Global Ratings has stated that it could lower its ratings on Continental if it expects its FFO to debt will fall below 30% with limited recovery prospects or if its EBITDA margin were to be materially weaker than expected. On the other hand, ratings could be raised if its FFO to debt and FOCF to debt ratio improve to at least 40% and 20% sustainably, while the group commits to maintaining prudent leverage metrics.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.