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Investing.com -- Fitch Ratings has downgraded Celanese Corp. and Celanese US Holdings LLC’s Long-Term Issuer Default Rating (IDR) to ’BB+’ from ’BBB-’ on Friday, citing sustained weak earnings due to soft end-market demand.
The rating agency also downgraded Celanese US Holdings LLC’s senior unsecured ratings to ’BB+’ from ’BBB-’ and assigned a Recovery Rating of ’RR4’. The Rating Outlook is Negative.
Fitch expects Celanese’s EBITDA leverage to remain above 4.0x beyond 2027 as the company faces middling demand and increased production capacity for acetic acid, particularly from China, which will pressure market pricing over the medium term.
Despite maintaining healthy margins and taking steps to improve free cash flow and reduce debt, including a dividend cut and targeted expense and capital expenditure reductions, these measures will not fully offset lower projected earnings, according to Fitch.
The Negative Outlook reflects expectations that Celanese’s leverage will remain elevated amid persistently uncertain market conditions.
Weaker demand in Asia and tepid automotive demand, combined with capacity additions in vinyl acetate monomer, have led to an oversupplied market and weak pricing environment in the vinyl chain. Fitch also expects ample supply and a sustained competitive pricing environment to impact standard-grade nylons in the company’s engineered materials segment.
Fitch projects that free cash flow will remain positive over the forecast period despite challenging market conditions, with an expected FCF margin of around 7%. The company has reduced higher cost inventory, cut capital expenditures, and removed about $120 million in operational costs.
The ratings benefit from Celanese’s leading market positions in acetyls and engineered materials. The company holds the top market position in acetic acid and vinyl acetate monomer (VAM), and the second position in vinyl acetate ethylene emulsions and redispersible powders.
Compared to peers, Celanese is similar in scale to Westlake Corporation (BBB/Stable) and larger than Huntsman Corp. (BBB-/Stable), though smaller than Dow Inc. (BBB/Stable) and LyondellBasell Industries N.V. (BBB/Stable). Celanese’s EBITDA margin is slightly higher than Westlake’s and exceeds those of Dow, LyondellBasell, and Huntsman .
Fitch noted that Celanese’s leverage is higher than peers following its 2022 acquisition of DuPont’s mobility and materials segment, and expects it to remain elevated through 2027 as the company works to reduce debt.
For a potential rating upgrade, Celanese would need to sustain EBITDA leverage below 3x and decrease absolute debt below $10 billion. The Outlook could be revised to Stable with faster recovery in market conditions, leading to increased confidence in deleveraging.
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